Bank of America’s Revamped Rewards Program: A Bold Bid for Customer Primacy

Bank of America is set to transform its long-standing customer loyalty framework. The question on many minds: Is this an evolution of a gold-standard program, or does it risk alienating a segment of its customer base even as it casts a wider net for rewards eligibility and enhances benefits for its most valuable clients?

Effective May 27, Bank of America will phase out its 12-year-old Preferred Rewards program, replacing it with the new BofA Rewards program.

The original Preferred Rewards program was notable for integrating all of a customer’s retail banking products, moving beyond credit card-centric rewards. This cross-platform approach, unusual for many financial institutions, will be preserved and even expanded in the new program.

What’s Changing with BofA Rewards?

Previously, Preferred Rewards required customers to maintain specific deposit or investment balances. The new BofA Rewards program eliminates these minimums, making every retail customer eligible to earn rewards from day one.

Why This Matters for Competitors: In today’s financial landscape, many consumers diversify their accounts across multiple providers, rarely granting primacy to a single institution. Bank of America’s move significantly raises the stakes, incentivizing customers to consolidate their financial relationships under its umbrella.

However, industry experts caution that the new program might lead to a devaluation of benefits for middle-tier customers. This could prompt them either to deepen their relationship with BofA, if feasible, or to explore alternative banking options.

Key Insights:

• Preferred Rewards, launched in 2014, transitions to BofA Rewards this May.
• Bank officials estimate that while 11 million customers currently participate, an additional 30 million could become eligible under the new BofA Rewards program.
• The entry-level tier for the new program has no minimum deposit or investment balance requirements.
• Participation in all tiers of the BofA Rewards program remains free.

BofA’s Strategic Vision: Deepening Customer Relationships

During a recent analyst meeting, CEO Brian Moynihan articulated a “stair step” strategy for growth, aiming to build broader customer relationships from an initial anchor account. The BofA Rewards program perfectly aligns with this vision, offering progressive incentives such as rate discounts, fee waivers, and eventually, “lifestyle” perks for higher tiers.

Experts view this initiative as a sophisticated blend of mass-market loyalty at the foundational level and premier benefits for high-net-worth clients, all without the hefty annual fees typically associated with ultra-premium credit cards like Chase Sapphire Reserve or American Express Platinum.

Andrew Davidson, principal strategist at Mintel, notes that this move coincides with Bank of America’s stated intent to bolster its credit card product investments. Moynihan himself highlighted President Holly O’Neill’s commitment to accelerating credit card balance growth, especially in light of aggressive marketing spending by rivals like JPMorgan Chase, Capital One, and American Express. Davidson believes BofA aims to significantly increase card penetration within its existing consumer banking base.

Understanding the New BofA Rewards Structure

The BofA Rewards program will debut with four distinct customer tiers, crafted to support customers across different life stages. According to bank officials, annual rewards value could range from $150 to $4,000, depending on the tier and how actively customers leverage the program. The foundational requirement is simply having a personal checking account with Bank of America.

Tiers are determined by a customer’s three-month average balance across their deposit and investment accounts:

• Member Tier: Under $30,000
  • Benefits include a 10% credit card rewards bonus, a $100 discount on mortgage fees, and a 0.1% auto loan discount.
  • All tiers receive enhanced fraud and ID monitoring (a service often charged by competitors) and access to exclusive deals with various retailers.
• Preferred Plus Tier: From $30,000 to $100,000
  • Key benefits: 25% credit card rewards bonus, $300 mortgage fee discount, 0.25% home equity line of credit (HELOC) rate discount, 0.25% auto loan discount, and free checking and savings accounts.
  • Also includes seven no-fee services and one complimentary U.S. ATM withdrawal from non-BofA machines.
• Preferred Honors Tier: From $100,000 to $1 million
  • Rewards increase to a 50% credit card bonus, $600 mortgage fee discount, 0.375% HELOC rate discount, 0.35% auto loan discount, free checking and savings, seven no-fee services, and unlimited U.S. ATM withdrawals.
  • This tier introduces “lifestyle” benefits with premium brands like BMW and Virgin Hotels, plus a monthly credit of $8 for select subscription services.
• Premier Tier: More than $1 million
  • The highest tier offers a 75% credit card rewards bonus and higher discounts on mortgages, HELOCs, and auto loans.
  • Beyond free checking and savings, all bank services are free, and unlimited waivers apply to both domestic and international ATM withdrawals.
  • Subscription reimbursement increases to $15 per month, alongside an expanded package of premium offers and access to curated private events.

Existing Preferred Rewards customers will retain their current benefits for six months post-transition, while new BofA Rewards benefits will become available in May.

Rewards for All: But Will It Drive Loyalty?

The Member tier’s broad accessibility, extending benefits to any customer with an account, represents a significant competitive shift, as noted by Andrew Davidson. He points out that some megabank rivals still impose minimum balances just to avoid fees.

A Clear Message: Consumers Demand Tangible Value. Davidson emphasizes that card issuers are increasingly moving away from vague notions of premium status. Instead, they focus on demonstrating precise, dollar-quantifiable value. Consumers, he asserts, are actively performing the math.

While ultra-premium card benefits often offset high fees, BofA’s program is strategically designed to foster financial consolidation within the bank. “Bank of America is always going to be about relationships, always about deepening relationships with the bank,” Davidson states. He suggests the new program aims to attract customers who prioritize value without being willing to pay fees.

The Economic Context: A “K-Shaped Economy” Reflection

Ted Rossman, principal analyst at Bankrate, views the BofA program through the lens of a “K-shaped economy.” While the Member tier offers some perks, Rossman believes the core thrust of the program is a reinforced focus on higher-revenue, higher-income customers and prospects.

This approach, Rossman notes, mirrors the evolving strategies of airline frequent flyer programs, which have increasingly adopted revenue-based rewards. “It’s not necessarily how many miles you actually fly on the airline, but rather how much you spend,” he explains. He adds that fierce competition has commoditized airline rewards, leading to increased fees for ultra-premium credit cards to re-establish exclusivity for perks like lounge access.

Consumer Perspective: Opportunity Cost. Rossman questions how consumers will weigh these benefits. While consolidating business with BofA might reduce fees and unlock perks, what is the opportunity cost? “Would that $100,000 in deposits or investments be better put someplace else?” Rossman asks. “That’s something that people need to think through. Is the juice worth the squeeze?”

Potential Devaluation for Existing Customers

The six-month grandfathering period for current Preferred Rewards customers raised red flags for both Davidson and Rossman, who foresee a devaluation for those in the middle tiers.

Davidson highlights the credit card rewards booster rates as an example: under the old program, a 75% booster was available to customers with $100,000 at BofA. “Now that particular benefit is being moved to consumers who have $1 million with BofA,” he explains, while the previous $100,000 group now receives only a 50% booster.

“They have moved the goalposts,” Rossman states, noting that many who enjoyed the 75% booster may not have the resources to achieve the new $1 million threshold. “I know this makes marketing and business sense,” Rossman concedes, “but some existing customers will be disappointed by some of the changes.”

Rossman also questions the true value of the offered loan interest rate discounts, especially for the Minimum tier, compared to what a savvy consumer might find from other lenders. “It gets more enticing when you hit the categories where you are six figures and up,” he says, “But there is value in being a free agent and getting the absolute best mortgage rate, auto loan rate, HELOC rate irrespective of loyalty.”

Source: Thefinancialbrand.com