Over the last couple of years, we have seen the higher annual fees get more coverage. There’s the American Express Platinum, Citi Prestige, and the newest addition to the list the Chase Sapphire Reserve (I think it is a weak name, personally). The benefits (currently) on these cards are fantastic, and the annual fee can easily be justified (at least for year 1).
These cards come with some pretty great features:
- Lounge Access
- Airline Credits
- Travel Insurace
- Global Entry/ TSA Pre-Check
- Bonuses worth hundreds to thousands of dollars.
- Status with car rentals
- Higher earnings on select bonus categories
- And a whole laundry list of other perks that make most in the travel community drool all over their keyboards
These benefits come with a price tag from $350-$450, not including authorized users. Not a small price to pay for a credit card, but for some it is well worth the price.
The issue I have been seeing more of, is the incorrect math when it comes to calculating the annual fee of a premium credit card. I’ll explain soon.
I have absolutely nothing against paying an annual fee, especially when the benefits outweight the cost. It can actually be well worth paying the annual fee on some credit cards.
I currently have a few in my collection:
- Chase IHG x2-v$49 x2 (Keeper)
- Chase Hyatt- $75 (Keeper)
- Chase Sapphire Preferred- $95 (I’m on the fence, but will probably keep for Hyatt transfers)
- American Express Everyday Preferred (My go to card currently)- $95 (Keeper)
- American Express Delta Gold (currently waived, but considering keeping for the benefits)-$95, waived for first year
- American Express Green Card (will cancel)- $95, wavied for first year
- Capital One Venture x2 (will cancel)- $59 x 2- waived for first year
The cards I plan to keep total $363 to $458 (counting Delta card) per year. To me, as long as the benefits outweigh the cost (especially the hotel cards), they will have a place in my wallet.
Back to my issue with calculating annual fees, using those airline credits…
The higher annual fee cards come with these “awesome” Airline credits:
- The American Express Platinum has a $200 airline credit every year.
- The Citi Prestige has a $250 airline credit every year.
- The Chase Sapphire Reserve (currently) has a $300 airline credit per year.
It is nice that the banks are reimbursing you, especially if you were going to spend the money anyways, but…..
What I am seeing is people directly subtracting the airline credit from the annual fee, which does not equate to me. For example, I was reading a few blogs the other day about the Chase Sapphire Reserve, which said they annual fee was $150 for the year after you take into account the airline credit. I completely disagree with this.
The airline credit is independent of the annual fee. Someone receiving the airline credit is equal to the amount of money spent on travel, not related to the annual fee.
If you received an annual fee credit for spending a certain amount of money in a year, that could be counted to reducing your annual fee. For the example below, I used $20,000 as amount to spend.
You will get 2 airline credits during year 1, so in that aspect, I fully understand you make a little bit of money. Well, only with Prestige and Sapphire Reserve, not American Express. That’s not what I am talking about in calculating the annual fee.
So let’s use the Chase Sapphire Reserve (since it has been blowing up my Twitter feed) as our example for this math.
In order to receive this airline credit, you need to actually spend $300 on the airline/hotel (there’s even reports of it working on Radpad) to receive your credit. If you don’t spend money on the airline, you do not get your credit. This might pay for your airline ticket you were going to pay for anyways, but this does not change the annual fee.
To me, your airline credit is nothing more than prepaying your own travel and Chase returning that portion back to you. Think of it as a free 900 Ultimate Reward points (at most), since Chase reimburses you for your purchase, up to $300.
Take this example, if you paid for your friends lunch, and in a week they paid you back, you woudn’t say you had your lunch paid for, right? You still paid for yours, but hopefully earned some extra points :-).
So the math really breaks down like this:
- $450 for annual fee +[($0-$300 on Airline) – ($0- $300 airline credit)] = $450.
It does not break down like this:
- $450 for annual fee – ($0-300 airline credit) = $150
If you were to have an annual fee credit, as mentioned above, it would look like this:
- [$450 for annual fee – ($300 if spending is greater than or equal to $20,000)] + [($0-$300 on Airline)- ($0-$300 airline credit)] = $150, only if spending $20,000 or more.
Even if you buy a gift card for the future use, this doesn’t discount the annual fee. You still pay $450 for the card, end of story.
I understand you can liquidate the gift cards for cash, and Doctor of Credit even had a post outlining this. In that case, yes that does lower the annual fee. I assume for most who were approved for the card they’ll use the credit for themselves.
Now let’s add the fact you have to PAY for an authorized user, this adds even more to your yearly cost. I don’t know about you, but my wife and I are authorized users on each accounts. This helps us hit bonuses quicker, since we do not MS.
Authorized User Fees:
- American Express Platinum- $175 for up to 3 users
- Citi Prestige- $50 for each user
- Chase Sapphire Reserve- $75 for each user
Even adding just one Authorized user on your account and that adds even more to your annual fee. That $450 annual fee just became a $525 annual fee (if you add 1 AU). I think you should get 1 free authorized user when you pay this high of an annual fee, but banks do not ask me for my opinion.
At the end of the day, with whatever credits you receive from the bank, you will have paid $450 for the Chase Sapphire Reserve, $450 for the American Express Platinum, and $350/$450 for the Citi Prestige.
These premium cards come with a lot of benefits, that can easily justify the high annual fees. The lounge access alone could be worth it for some, especially if they are in airports frequently. The airline credit is a great feature of these cards, they help reduce your cost of traveling, but they do not reduce the amount of money spent on the annual fee.
Do you agree with me that airline credits do not reduce the annual fee? How do you calculate your cost on annual fees?