When you’re making a bit of dough, you may feel inclined to go traveling and try experiencing some of the finer things in life. Banks understand this, which is why credit cards exist that are completely based on giving you rewards for spending on traveling and dining. Trying to figure out which travel rewards credit card is best, I stumbled upon an analysis on Nerdwallet about which credit card is better, the Chase Sapphire Reserve card or the Chase Preferred card.
In the analysis, we learn that although the Chase Sapphire Preferred card charges $95 a year while the Chase Sapphire Reserve card charges $450 a year, you would have to spend $467 more on the Chase Sapphire Preferred card to break even on your costs. The Chase Sapphire Reserve card had better benefits overall, which is why I will be using it as a point of comparison for the rest of this post. The analysis was useful to see but I had two problems with how things were analyzed, which I touch upon below.
Problem 1: The analysis was focused on the break-even point for when the cards became profitable to use. However, looking at break-even that way didn’t make sense to me. The analysis should have considered the break-even point including the opportunity cost of using a regular no-fee credit card that offers 1% cash back. When you’re making purchases on dining/travel, you are losing an opportunity to make 1% back on those purchases and because of that, the cost of buying with a 1% card should be included in your calculations. I’ll explain this more later where I’ll be comparing the benefits of using the Chase Sapphire Reserve card vs the Chase Freedom Unlimited card which actually offers 1.5% cashback and has no fees.
Problem 2: The other concern I had was how much I would have to be spending on travel and dining already to justify getting the Chase Sapphire Reserve card in the first place. When using credit cards, you are ideally saving more money than you are losing. However, when you have credit cards, you may be incentivized to spend more than you should be. This incentivized spending is problematic. If your original intent was to save money by getting these credit card rewards, then it defeats the purpose of you using your credit card if you end up spending more overall anyway. This led to the question: “At what point is the Chase Sapphire Reserve card worth the $450 annual fee, without having to make changes to your lifestyle?”.
Let’s examine the policies of the Chase Sapphire Reserve card (we ignore the sign-up bonus because we are examining the long-term viability of owning the card, not only seeking short-term benefits):
Annual Fee: $450
Reward Points: 3 points per $1 spent on travel and dining and 1 point per $1 spent on everything else. 1.5 cents apiece when redeemed for travel through Chase Ultimate Rewards. Assuming each point is worth one cent in cash-back value, then you’re getting 3% back for travel and dining purchases. If you redeem through ultimate rewards, you receive an extra 50% value from your purchase, becoming a possible 4.5% back.
Annual Credit For Travel Expenses: You receive $300 automatically applied to travel spending.
Other Perks: Transfer Points: 1:1 transfer points between partners. Unlimited access to more than 900 airport lounges worldwide through Priority Pass Select. Up to $100 reimbursement every four years for Global Entry or TSA PreCheck application fees charged to your card.
Automatically, we learn quite a bit about the bare-minimum kind of lifestyle we should have to justify the cost of getting this card.
Break-Even Conditions for Spending on Chase Sapphire Reserve Card:
- $300 travel credit means you’re expected to already be traveling for more than $300 a year.
- The remaining $150 must be made up in points, which means you must be spending total $5000 a year on travel/dining, assuming 3 points per dollar.
So just to make nothing from your Chase Sapphire Reserve Card, you would have to be spending $5000 on travel and dining. What if we had spent 5000 on Chase’s Freedom Unlimited Card offering 1.5% cash back? You would get back $75. Doesn’t seem worth it to get a reserve card now. Why get a travel rewards card if it doesn’t really reward you.
Let’s try doubling spending for the year to $10,000. We find that the chase freedom unlimited card would get you $150, while your chase sapphire reserve would finally hit break-even for $150 as well. Ultimately, you would have to spend over $10k a year on travel and dining for the chase sapphire reserve to make sense over freedom unlimited.
Now let’s assume you were interested in redeeming your Chase Sapphire Reserve points at 50% more for only travel expenses. You would have to be spending over $5000 a year on travel for the chase sapphire reserve card to make sense over the chase freedom unlimited.
Our findings show that unless you’re already spending $10k a year on travel and dining, or $5k a year on travel alone through chase’s partners, then it doesn’t make sense to get the Chase Sapphire Reserve card. You could factor in the ability to transfer points between other institutions but that means to make this card viable for the long-term, you would need to be ready to spend dozens of hours hunting for deals every year. There are perks such as having access to airport lounges and the relative prestige of having the Chase Sapphire Reserve card, but unless you meet the spending conditions, the card is a drain on your resources. Hope this was helpful.