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Are Points Earned via Credit Card Spending Worth the Annual Fee?

Credit card wallet

Reader @JGR sent me question on Twitter recently that I think is worth discussing further. He is considering downgrading his Chase Sapphire Preferred credit card to the Chase Freedom card. Based on the amount of bonus category spend he puts on his Sapphire Preferred card, he calculates the value of the points he earns at $175 per year. This clearly off-sets the $95 annual fee, so if he wanted to keep the card, he would be justified in doing so since he gets more value in the form of points than he pays for the annual fee.

I advised him that based on his point valuation, as long as he really does get $175 worth of value out of the Ultimate Rewards points from the Sapphire card, keeping the card would make sense. However, this brought to mind another issue: Is the ability to generate $175 in points worth keeping a card with a $95 annual fee? If he did just downgrade to the Chase Freedom card (which has no annual fee), he would still have the ability to generate $300 cash back/30,000 points through their quarterly bonus categories each year – without an annual fee. Granted, he may not hit this target since the categories vary each quarter and may not match up with his spending. Ultimately, he is earning $80 worth of value from the Sapphire Preferred card each year ($175 worth of points – $95 annual fee = $80). Can he earn $80 worth of points or cash back from the no-fee Chase Freedom card?

That’s a question many of you will have to consider when it’s time to decide which credit card to put on the chopping block. Recently, I’ve become more focused on downsizing my wallet and holding onto cards that are absolutely worth the annual fee. I’ll continue to take advantage of great card offers as they come, but I’m organizing a core group of cards that will stay in my wallet for good. Thus, I’ve been careful not to over value a card’s benefits and get stuck with hefty annual fees.

Yes, the American Express Platinum card offers $200 in airline fee credits along with a range of benefits that some would argue are worth more than the $450 annual fee. However, those are benefits that I wouldn’t utilize if it weren’t for the fact that I was spending $450 to access them. Does that make sense? Sometimes we assign false value to things so we can justify paying for them, when really it puts us in the red. I don’t check bags if it’s going to cost me $200 per year and I’m too lazy to go down to the Global Entry office for the interview. So really, paying $450 for a card that has benefits (or rather, conveniences) that I otherwise wouldn’t pay for isn’t a wise investment for me.

The point of this post is to remind you to not get too caught up in how other people value credit card benefits. It’s something I’ve done before and I want to warn against it. Always consider the alternative and whether the perks gained from a credit card are worth paying, and whether you can find something similar elsewhere with a lower cost.

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Ariana Arghandewal

5 Comments

  1. If you don’t have an Ink card, you need that Sapphire Preferred to be able to transfer points to airlines. That makes it worthwhile to me, along with the car rental insurance coverage benefit, which covered me in Ireland.

  2. This is a very good discussion. When deciding whether to downgrade from the Sapphire Preferred to the Freedom, I like what you said about access to bonus categories. I read somewhere (I forget exactly where) that you can downgrade from the Sapphire Preferred to the Freedom, and get a second Freedom card that way. Then, you would have access to twice the amount of bonus points in rotating categories. However, you would lose the benefits of the Sapphire Preferred, so this is the choice you have to make.

    When it comes to the American Express Platinum, Greg from Frequent Miler shared an interesting tip. Apparently, you can use charge award taxes and fees to the American Express Platinum, and use the $200 airline fee credit. Then, you can cancel the award ticket, get the miles and fees refunded, and keep the statement credit. However, you’re still looking at a $250 annual fee even with this technique.
    http://freequentflyerbook.com/blog/2014/11/3/statement-credits-are-worth-much-less-than-cash

    • That’s a really good tip RE the Amex Platinum. For me, it still doesn’t work out because $250 is more than I’m willing to pay and I can off-set taxes through ms on the Arrival Plus card. The CSP is also losing its appeal with the 7% dividend going away. I will certainly miss the looks of admiration though.

  3. I thought about canceling the Sapphire card because I have the Ink. But the Sapphire gives me 2x for dining and my wife and I eat out quite a lot. So I may keep it for that.

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