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How to decide if your premium travel card is still worth the high annual fee
Here's a step-by-step guide on how to calculate whether the high annual fees associated with your premium travel credit card are worth your money anymore.
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Many Americans continue to cancel travel plans this year due to the ongoing coronavirus pandemic, and you may also want to consider canceling credit cards in your wallet.
If you have a premium or luxury travel card, chances are high that the card comes with a steep annual fee upwards of $500 a year. The card's high cost can typically be offset by lucrative rewards and added perks, such as airport lounge access, but you may not take full advantage of all your card has to offer this year if you opt for a staycation.
Before you receive a bill for your card's annual fee, calculate whether it's still worthwhile. Compare the cost of the annual fee to the value you receive from rewards, statement credit offers and added perks that you actually plan to use this year.
Below, Select provides a step-by-step guide on how to calculate whether your premium travel credit card is worth your money anymore.
How to calculate if a premium travel card is worthwhile
There are many premium or luxury travel cards that boast industry-leading rewards rates and dozens of cardholder perks, however these cards don't come cheap. Therefore, if you don't plan on traveling this year, or anytime in the foreseeable future, you may want to calculate if your card is still worth the cost by following the five steps below.
- Know the annual fee
- Estimate your reward earnings for the year
- Add up the statement credit perks
- Total the additional cardholder benefits
- Calculate the net cost of holding the card
Below, I evaluate whether my Chase Sapphire Reserve® card is still worth its $550 annual fee by totaling all the benefits I plan to use this year.
1. Know the annual fee
Chase increased the Sapphire Reserve's annual fee to $550, up $100 from $450, earlier this year. I applied for the card before the annual fee increase took effect, making the Reserve my tenth credit card — and my most expensive card.
This year, existing cardholders with renewal dates throughout the rest of 2020 don't have to pay the card's increased $550 annual fee. You'll either receive a $100 credit to offset the fee to $450 (renewal dates between April 1 through July 31, 2020) or you'll just pay $450 (renewal dates between Aug. 1 through Dec. 31, 2020). However, new cardholders will pay $550.
My cost: $450
2. Estimate your reward earnings for the year
The Chase Sapphire Reserve card currently earns the following rewards rates:
- 10X points on Lyft rides through March 2022
- 5X total points on air travel and 10X total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards® immediately after the first $300 is spent on travel purchases annually
- 3X points on other travel and dining
- 1X point on all other purchases
Learn how credit card issuers classify purchases for bonus rewards.
Based on these rewards rates, I calculated how much I plan to spend in each category with my Sapphire card. Since I optimize my 10 cards, I only plan on using my Sapphire card for select purchases, including gas stations (5X for a limited time; offer ended Sept. 30, 2020), tolls (which qualify for 3X points on travel) and occasionally dining (3X points).
Typically, I'd also spend on travel. In fact, I had a trip planned with airfare and hotel costs, but since it was canceled and I have no upcoming trips, spending on this card decreased significantly.
My spending habits also adjusted to include more gas and grocery purchases, but I primarily charge them to the Blue Cash Preferred® Card from American Express since it earns 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%) and 3% cash back at U.S. gas stations. (Cash back comes in the form of Reward Dollars that can be redeemed as a statement credit. Terms apply.) However, since the Sapphire Reserve is temporarily offering 5X points at gas stations, I'll pivot to that card from July through September.
Here's the breakdown of how many points I expect to earn with my Sapphire Reserve card this entire year:
- Gas: 750 points ($150 estimated spend from July to Sept. to earn 5X points)
- Tolls: 360 points ($120 estimated spend x 3X points)
- Dining: 900 points ($300 estimated spend x 3X points)
- Total: 2,010 points
In addition to rewards, I earned the Reserve's welcome bonus — 50,000 bonus points after you spend $4,000 within the first three months from card opening. This bonus is valued at $750 when redeemed for travel via Chase Ultimate Rewards® since points are worth 50% more when used that way.
But since I don't have any upcoming travel plans and want to use the bonus sooner rather than later, my estimated value from the bonus is a standard $500, which I've already started to use for gift cards.
My value: 52,010 points or approximately $520 (2,010 points + 50,000 bonus points)
3. Add up the statement credit perks
Annual $300 travel credit
You'll automatically receive up to $300 in statement credits as reimbursement for travel purchases charged to your card each account anniversary year. I've already used the full $300 credit.
$60 DoorDash credit
Cardholders receive a $60 credit for purchases made with DoorDash in 2020 and an additional $60 next year. I've already received the full $60 credit on three delivery orders.
Statement credit offers that I don't plan on using:
- Instacart Express membership credit up to $50
- Global Entry / TSA PreCheck credit (worth up to $100 every four years)
My value: $360
4. Total the additional cardholder benefits
The Sapphire Reserve card comes with dozens of benefits, but several can easily receive a dollar amount evaluation.
However, I don't plan on taking advantage of these benefits:
- Complimentary year of Lyft Pink membership (worth $19.99 per month)
- Complimentary year of DashPass (worth $9.99 per month)
- Priority Pass Select membership (valued at roughly $429 a year)
My value: $0
5. Calculate the net cost of holding the card
Once you total the fees and benefits of your card, subtract the two to find the net cost of holding the card.
Using my example, I paid $450 to open the Sapphire Reserve, which is the only fee I had to pay for this card since I pay every bill on time and in full. Then I expect to receive $520 from rewards and welcome bonus earnings and $360 from statement credit offers.
- Total fees: $450
- Total benefits: $880
Lastly, I subtracted the fee ($450) from the total benefits ($880) to find that I come out $330 ahead, making the Sapphire Reserve worthwhile this year.
However, it's important to note that this includes $500 from the welcome bonus, which I won't earn in any subsequent years. And when I'm billed the annual fee in 2021, it will cost $100 more. Therefore, the net cost of holding this card next year will result in a $170 loss, which is why I plan to cancel my Chase Sapphire Reserve next year.
My value: Earn $330 this year, lose roughly $170 next year
If you have a premium travel card, you should make sure the card is worthwhile every single year by doing some quick calculations. This can help you understand whether it really makes sense to pay an annual fee of $500 or more. After all, your spending habits can change over time or due to an event out of your control, such as the coronavirus.
As a result, you may want to ask your card issuer for a retention offer that can help offset the annual fee or downgrade to a low or $0 annual fee card.
For rates and fees of the Blue Cash Preferred® Card from American Express, click here.