Finance

Confused by Complex Credit Card Rewards? That’s Exactly What Banks Want (Trap 3)

April 14, 2025
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Note: This is part of our series on credit card rewards traps. Check the end of this article for links to more pitfalls.

If you’ve mastered dodging the Sign-Up Bonus Bait-and-Switch, let’s level up. Ever felt like you needed an advanced degree just to understand your credit card rewards? You’re not alone—banks love making rewards complicated. Rotating categories, spending caps, and confusing tiers are all carefully crafted to keep you off balance.

Ever had a card that gives 5% cash back in certain categories, but only sometimes, and only up to a limit, and only if you remember to activate it? Welcome to the maze of rotating categories and reward caps. Issuers structure rewards this way to motivate you to use their card for specific purchases (often hoping to partner with certain merchants), but also to limit their payout. They know many people won’t fully navigate the complexities, which saves the issuer money.

How it works:

Some popular cash back cards advertise things like “5% back on rotating categories each quarter” or bonus points on select purchases. For example, one quarter it’s gas stations and streaming services, next quarter it’s groceries and home improvement stores. Sounds great – you can get significant cash back. But here’s the catch: you usually have to manually activate these categories every quarter (logging into your account and clicking a button), and the 5% bonus is typically capped (often on the first $1,500 of spending per quarter, then it drops to 1%). If you forget to activate, guess what? You earn a measly 1% instead of 5%, and the bank pockets the difference in saved rewards. Even if you do activate, there’s a chance the specific store you spend at doesn’t code as the category you expect (those pesky merchant codes can be unintuitive – e.g., is Amazon a bookstore or “everything store”?).

Issuers implement complexity knowing many users won’t maximize it. They could offer a simple unlimited 2% on everything (some cards do), but many choose the complicated route: tiered rewards (e.g., 3% on groceries, 2% on gas, 1% on others), rotating bonuses, or special categories like “5x points on travel – but only if booked through our portal.” These hoops mean the average cardholder earns less than the theoretical maximum. It’s a bit like a gym membership model: the gym bets on many members not showing up; the card issuer bets on cardholders not fully cashing in on all rewards.

Why it’s hard to detect:

The difficulty here is less about detecting (the terms are disclosed, albeit in fine print) and more about keeping track and understanding. Life is busy – not everyone has time to read reward program updates like it’s a part-time job. If you have multiple cards, keeping track of which one to use on which day for which store can become comically convoluted. Many people just default to one card and assume they’re getting a good deal, when in reality they might be missing out or hitting caps without realizing. In fact, a significant chunk of rewards go unredeemed each year simply because people don’t navigate the redemption or forget about them. A CreditCards.com survey found 33% of cardholders didn’t redeem any rewards in 2020 – some of that is due to forgetting or not realizing how to claim rewards. And if you’re not activating those quarterly 5% bonuses, that’s a mistake, as one industry expert bluntly put it . The issuers know a lot of us will forget. It’s telling that nearly a quarter of rewards card users haven’t redeemed their rewards in over a year . Those unused rewards represent breakage (unused value) that benefits the banks.

Who gets tripped up? Honestly, even the savvy can slip here, but busy families and older retirees often suffer. Imagine a working parent juggling a job and kids – remembering to opt in for a new 5% category every three months is low on the priority list. A retiree who isn’t internet-savvy might not even know they need to activate anything online. Frequent travelers might carry multiple cards (airline card, hotel card, etc.) and lose track of each card’s quirks.

The complexity is a feature, not a bug, from the issuer’s perspective: the more complicated the reward structure, the more likely you’ll earn less than the maximum, saving them money. As consumers, one way to fight back is to simplify your own strategy – some experts suggest opting for a flat-rate cash back card (like 1.5% or 2% on everything) to avoid the trap of complexity altogether . Simpler cards exist precisely because so many people are fed up with the convoluted ones.

Don’t stop now—check out the other traps banks hope you’ll miss