What are 'Tiered Rewards'

Tiered rewards are cash back, points or miles that a credit card offers at different rates based on how a cardholder spends.

BREAKING DOWN 'Tiered Rewards'

Tiered rewards programs give higher rewards to cardholders who spend more. The credit card company sets the different spending thresholds to which different reward earning rates apply.

Tiered rewards can confuse customers because of the way card issuers sometimes describe them. Read the fine print to make sure you understand a card’s reward structure before you apply. For example, if you’re applying for a card that advertises up to 1 percent cash back, the card probably has a tiered rewards system. You won’t start earning 1 percent back until you’ve spent, say, $2,000. Until then, you might only earn 0.5 percent back.

Some loyalty programs or membership rewards cards also offer a tiered rewards system. For example, some casinos offer several different levels of rewards, with the incentives and bonuses increasing as the customer spends more money.

Examples of Tiered Rewards

Discover used to have a tiered rewards system that applied to some purchases and not to others. Cardholders earned 0.25 percent cash back on their first $3,000 in purchases each year; once they passed this threshold, they earned 1 percent back on all additional purchases. Cardholders also earned 5 percent back in quarterly bonus spending categories; these rewards were not tiered, and customers earned the full 5 percent back in these categories regardless of spending levels. Discover stopped using a tiered rewards system in 2013 and switched to a flat rewards system, where cardholders earn 1 percent back on all purchases from the first dollar they spend, except for those purchases that fall into quarterly bonus categories, which still earn 5 percent back.

Another example of how tiered rewards work is that all cardholders might earn 1 percent back on all purchases, but then they might earn additional rewards based on what tier their overall spending falls into. A customer in the first reward tier who spent $1,000 during her last billing cycle might get a 25 percent bonus, so she would get $10 for the 1 percent cash back and an additional $2.50 for the bonus. A customer with the same $1,000 in spending for the last billing cycle but who was in the third reward tier because of high spending earlier in the year might receive a 75 percent bonus, or an extra $7.50.

Tiered rewards are not common in today’s credit card market; most issuers offer a simple flat rewards system. Some issuers offer the possibility of earning additional cash back, again at a flat rate, when you make purchases in certain categories or when you complete certain actions, such as paying your bill on time or paying your balance in full.

RELATED TERMS
  1. Tier 3 Capital

    Tier 3 capital is tertiary capital, which many banks hold in ...
  2. Real Estate Market Tiers

    Real estate market tiers categorize cities as Tier I, Tier II ...
  3. Tier 1 Leverage Ratio

    The Tier 1 leverage ratio is the relationship between a banking ...
  4. Tier 1 Common Capital Ratio

    The Tier 1 common capital ratio is a measurement of a bank's ...
  5. New Balance

    The new balance is the sum of the previous balance, payments, ...
  6. Convenience Check

    Convenience checks are blank checks provided by credit card issuers ...
Related Articles
  1. Personal Finance

    Credit Card Review: Capital One Venture Rewards (COF)

    Learn how the Capital One Venture Rewards card helps you earn unlimited rewards miles to pay for all types of travel expenses, such as airfare and hotel costs.
  2. Personal Finance

    Credit Card Review: Blue Cash Everyday Amex (AXP, KSS)

    Read about the Blue Cash Everyday Amex card, and learn how it saves cardholders money on groceries, gas and other household purchases throughout the year.
  3. Tech

    Avoid Credit Card Rewards Devaluation At All Cost!

    If you don't know how to redeem your rewards points, we'll show you the easiest way to avoid rewards devaluation this year.
  4. Personal Finance

    Credit Card Review: Citi Double Cash

    Learn about the Citi Double Cash credit card and its simple cash back program that pays a combined 2% rate on every card purchase.
  5. Personal Finance

    4 Best Credit Cards for Military Veterans in 2016

    Discover the four best credit cards for veterans, including the programs with the best airline mileage rewards, points for dining out and gas purchases.
  6. Personal Finance

    3 Best Credit Cards for Restaurants in 2016

    Credit cards with restaurant rewards can be lucrative, if they are managed properly. Here are three cards with the best features.
  7. Personal Finance

    Best Loyalty Programs For 2011

    What makes Discover, Ebates and other companies stand out?
  8. Investing

    Credit Card Review: Premier Rewards Gold Amex (AXP)

    Read more about the American Express Premier Rewards Gold card, one of the top charge cards in the United States and a favorite among frequent flyers.
  9. Personal Finance

    Maximize Your Chase Ultimate Rewards Points

    With more than one Chase card that gives Ultimate Rewards points, you can sometimes use the system to stretch your awards to be worth extra. Here's how.
  10. Personal Finance

    Capital One Cards: VentureOne Vs. Venture Rewards

    Which Capital One rewards credit card offers the best deal for you?
RELATED FAQS
  1. How do travel rewards cards work?

    Travel reward credit cards use a points-based system to help consumers earn bonuses and other incentives, such as airline ... Read Answer >>
  2. How can I calculate the tier 1 capital ratio?

    Learn about the tier 1 capital ratio, what the ratio indicates about a firm's capital adequacy and how to calculate a firm's ... Read Answer >>
  3. Should I pay my mortgage with my credit card to earn rewards?

    If you try to pay your mortgage with a credit card to earn cash back rewards, you'll discover that your options are extremely ... Read Answer >>
  4. Can the Best Buy credit card be used anywhere?

    Learn how the Best Buy credit card can only be used in Best Buy stores and online to make purchases through the Best Buy ... Read Answer >>
Trading Center