A Fourth Tier of Credit Cards Has Begun To Emerge (Video)

For a long time, credit cards have generally fallen into three tiers: no-annual-fee cards, mid-tier cards with annual fees around $95 and premium cards with annual fees measured in the hundreds (these used to cluster around $400 or $500 per year, now it’s more like $800 or $900 in many cases).

The upmarket migration of luxury credit cards such as the Chase Sapphire Reserve® and American Express Platinum Card® has created a large (and growing) gap between the traditional middle and premium tiers. And we all know that businesses see gaps and like to fill them with profit.

In this case, they’ve begun to do that by introducing a fourth tier of cards — upper-middle-class cards, if you will — and I expect more cards at that level are on the way. This is good news for the many households left behind by the soaring annual fees of premium cards, but underwhelmed by the traditional mid-tier offerings.

There’s a lot of potential value in this emerging market segment, as well as opportunities for card issuers to be even more creative when it comes to what this group is interested in. For example, where’s the credit card with elevated rewards or statement credits for daycares and summer camps or airport lounge access for the whole family?

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A new tier of credit cards is emerging ??

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Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

So let’s take a look at the current landscape and make some predictions about what might be coming.

Luxury cards have become much pricier

If you want the most comprehensive airport lounge access and the longest list of travel and lifestyle credits, you’re better off with a really high-end card such as the Amex Platinum or Chase Sapphire Reserve. But you’re going to pay a handsome price for those privileges: These cards have raised their annual fees by hundreds of dollars in recent years, to $895 and $795, respectively. You’re not getting champagne travel on a beer budget anymore. Recent fee increases have promoted an even greater air of exclusivity — champagne travel on a caviar budget, if you will.

I don’t see that trend reversing anytime soon. We haven’t reached the top of the annual fee mountain yet. Within the next few years, one or both of these cards will likely eclipse the $1,000 annual fee threshold — and there will be plenty of people willing to pay it. The high-end consumer is doing quite well. Moody’s, for instance, reports that the top 10% of earners now account for 50% of all spending (a record high). Card issuers are tripping over each other in an effort to woo these heavy spenders.

But there’s inevitably going to be some attrition, too, and I see that as a feature of the strategy, not a bug.

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