Is the Chase Sapphire Preferred Worth the Annual Fee?
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For many years, the Chase Sapphire Preferred Card has been one of the most lucrative options out there. Due to its relatively low annual fee and some terrific redemption options through the Ultimate Rewards program, I frequently recommend it as a first card to get for my friends and family members just sticking their toes into the water. However, the annual fee can still be a sticking point for many, so today I’ll analyze whether the Sapphire Preferred is worth its $95 annual fee.
To accomplish this, I’ll consider the most important benefits on the card and analyze what you’d need to do with each one to ensure that you’re $95 is being well spent after year one. This is an important distinction, because the first year value proposition on the card is, to put it bluntly, a no-brainer. Not only is the annual fee waived in year one, but you can also earn 50,000 bonus points after you spend $4,000 on purchases in the first three months from account opening. That haul alone is worth $1,050 based on TPG’s most recent valuations, a value that would cover more than 11 years’ worth of annual fees in one fell swoop.
Of course, that sign-up bonus will only help in the first year. Starting in year 2, you’ll have to start coughing up $95 for the privilege of keeping the card, so let’s take a look at the other key perks to see if it’s worth it.
One of the most basic benefits on the card is the earning rate. You’ll earn 2 Ultimate Rewards points per dollar spent on dining and travel purchases and 1 point per dollar spent everywhere else. This seems relatively straightforward, but Chase actually defines these bonus categories quite broadly. Here’s how the issuer’s website classifies travel:
Merchants in the travel category include airlines, hotels, motels, timeshares, campgrounds, car rental agencies, cruise lines, travel agencies, discount travel sites, and operators of passenger trains, buses, taxis, limousines, ferries, toll bridges and highways, and parking lots and garages.
I’ve also seen this apply to dining, as I’ve visited several bars that don’t serve food yet are still classified as restaurants and thus award bonus points on the Sapphire Preferred.
Assuming you agree with TPG’s valuations, which peg Ultimate Rewards points at 2.1 cents apiece, purchases in the dining and travel category will give you a return of 4.2%. But is this alone enough to make the card worthwhile? To benchmark, let’s compare this to a card with no annual fee that still offers a solid return (2%) on everyday purchases (1% when you buy plus 1% when you pay): the Citi Double Cash Card.
For every dollar you spend on either dining or travel, you’d earn an extra 2.2 cents with the Sapphire Preferred when compared to the Citi Double Cash. If you spend enough in these categories, these extra earnings could wind up covering the $95 annual fee. Here’s the calculation to find that “break-even” amount:
$95 / $0.022 = $4,318.18
In other words, if you typically spend more than $4,318.18 on combined dining and travel purchases in a year, the extra points you’d earn on the Sapphire Preferred would cover the $95 annual fee. This works out to just under $360 per month.
Keep in mind that this math is all contingent upon Ultimate Rewards points being valued at 2.1 cents apiece. I (personally) have gotten even higher value by transferring to partners like Hyatt for stays at properties like the Park Hyatt Zurich or British Airways to utilize the carrier’s distance-based award chart. However, if you typically redeem your Ultimate Rewards points directly for travel at a rate of 1.25 cents apiece, your calculus changes just a bit:
$95 / $0.005 = $19,000
In this case, since every dollar you spend on dining and travel gets you an extra 0.5 cents, you’d need to spend $19,000 on the Sapphire Preferred to cover the annual fee. Still doable but a much steeper hill to climb.
No Foreign Transaction Fees
Another potentially valuable perk on the card is that you won’t have to pay foreign transaction fees when you make purchases outside the US. This was actually one of the driving factors that initially led me to apply for the card, as the other ones in my wallet charged 2.7 – 3% on these transactions. The vast majority of credit cards that waive foreign transaction fees carry an annual fee (though there are a few exceptions), so once again we’ll compare the Sapphire Preferred to the Citi Double Cash, which charges 3% for purchases made abroad.
Here’s the math to determine how much you’d need to spend outside the US to make up the annual fee:
$95 / 0.03 = $3,166.67
If you typically spend more than $3,166.67 abroad in a given year, the Sapphire Preferred could be a great addition to your repertoire. Earning Ultimate Rewards points and saving a few percent in foreign transaction fees is a pretty powerful combination for your next trip.
Primary Car Rental Coverage
If you regularly rent cars when traveling, another key perk on the Sapphire Preferred is the primary car rental coverage it offers. In a nutshell, whenever you rent a car and pay for it with your Sapphire Preferred, you’re covered for loss, damage or theft to the car without needing to report it to your own car insurance provider. While not nearly as “tangible” as the two perks identified above, it’s still a great way to enjoy peace of mind the next time you hit the road.
For example, let’s say that you rent a car on your next trip and return to the parking lot after lunch to find a huge dent in the side from an unknowing fellow driver (who cruelly left no note!). The damage comes to $1,200 according to the car rental agency. If you were paying for the car with a regular card that doesn’t offer primary coverage, you’ll likely need to report the incident to your insurance company and hope you get paid, minus any applicable deductible. If, on the other card, you paid with your Sapphire Preferred, you’re covered for that full amount.
Keep in mind, though that this protection typically doesn’t include liability insurance, so if you’re at fault and cause damage to other cars or personal property, you’d still be on the hook for those bills. It also doesn’t apply to all types of cars (most specialty categories like pick-up trucks and antique vehicles are excluded), but this can still be a lifesaver when it comes to your bank accounts.
As I mention above, it’s hard to peg a true “value” on this benefit, but even if you rent a car just two or three times a year, I’d say that this protection easily covers the $95 annual fee.
Other Travel Coverage
Another set of perks we’ll consider fall into an all-encompassing category called “travel coverage.” Here are a few of the key ones:
- Trip Cancellation Insurance: Up to $10,000 per covered trip for pre-paid, nonrefundable travel expenses; covers you, a traveling companion or immediate family member when you use the Sapphire Preferred for the trip.
- Trip Delay Protection: If your flight is delayed by 12+ hours (or it required you to have an overnight stay) and you paid for it with the Sapphire Preferred, you can enjoy reimbursement of up to $500.
- Baggage Delay Coverage: If your baggage doesn’t arrive with your flight and is subsequently delayed by more than 6 hours, you can invoke the Sapphire Preferred’s coverage to cover up to $100 per day in essential purchases (like toiletries, clothes, etc.).
For each of these items, taking advantage of it just once during the course of the year should easily cancel out the $95 annual fee from the card.
The final rationale for opening the Sapphire Preferred is how it interacts with other Chase products that carry no annual fee (like the Chase Freedom and the Chase Freedom Unlimited). Many newbies to the points and miles world are drawn to these cards, since they require no up-front “investment” in the form of an annual fee, and they also offer straightforward cash back for purchases. If you started with one (or both) of these cards and are ready to “graduate” to a more complicated yet lucrative award program, the Sapphire Preferred and it’s low annual fee could be the perfect fit.
This is all due to the fact that Ultimate Rewards points can be freely transferred from one of your card accounts to another. As a result, even though the points you’d earn on the Freedom or Freedom Unlimited are technically just redeemable for cash back, if you also have the Sapphire Preferred, you can move all of your points under the Sapphire Preferred to turn non-transferable Ultimate Rewards points into fully transferable ones. In fact, the Sapphire Preferred and Freedom Unlimited are a fantastic combination of cards for beginners for this exact reason, as you’ll earn 2x points on travel and dining and 1.5% cash back spent everywhere else. This gives you a minimum return of 3% on purchases per TPG valuations, which is a healthy margin.
So what’s the verdict?
Unfortunately, like most things in this hobby, there’s no cut and dried answer to the question, “Is the Sapphire Preferred worth the annual fee?” That being said, there are some situations where the answer is a resounding yes, so consider opening and holding onto the card in year two and beyond if you fall into one (or more) of these categories:
- You spend at least $4,318.18 in combined dining and travel purchases each year. The extra points you’d earn on the Sapphire Preferred will easily cover the annual fee.
- You spend at least $3,166.67 a year outside the US and don’t currently have a card that waives foreign transaction fees. Once again, the money you save will cover the $95.
- You’re looking for valuable travel protection. Some of the most under-appreciated perks on travel rewards credit cards involve the various coverages they include, and many involve travel. The Sapphire Preferred has primary car rental coverage, trip cancellation and delay insurance and even baggage delay protection. It’s hard to peg a value to these benefits before you use them, but when things go wrong, they can be a lifesaver.
- You currently hold the Chase Freedom and/or Chase Freedom Unlimited. When you hold the Sapphire Preferred with one of these cards, you can freely move points from one account to another, effectively augmenting the value of your Freedom earnings by translating them into fully transferable Ultimate Rewards points.
Keep in mind too that the Sapphire Preferred is subject to Chase’s dreaded 5/24 rule (whereby you won’t be approved for most Chase cards if you’ve opened 5 or more new card accounts with any issuer over the last 24 months). This is yet another reason why the card should be one of the first to be added to your wallet.
Everyone’s spending and travel situation is unique, so it’s exceedingly hard to speak in absolutes when it comes to a specific travel rewards credit card. However, the Chase Sapphire Preferred Card continues to represent a solid value proposition (even with the introduction of its wildly popular premium cousin, the Chase Sapphire Reserve). In fact, there are times when the Preferred could be better than the Reserve, so just like with any of our analyses, be sure to crunch the numbers to make sure that you’re getting enough value from the card to justify the $95 annual fee. Hopefully this post has given you a framework for doing just that!
For more information on the Sapphire Preferred, check out the following posts:
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