UPDATE 2: The $300 travel credit applies to purchases at grocery stores and gas stations through June 30, 2021.
UPDATE: Chase recently changed it’s annual fee refund policy for product changes from 60 days for a full refund to about 40 days. The premise of this post still works, just mind the timing if you choose to downgrade/product change.
In late 2016, Chase introduced the Sapphire Reserve to it’s stable of credit cards. It carries a hefty $550 annual fee ($450 for renewals), but it also offers a myriad of travel benefits that offset that fee. These include an annual $300 travel credit, complimentary Priority Pass airport lounge access, and Global Entry/TSA Pre✓ credit.
If you applied for the Sapphire Reserve when it first came out, you are facing a decision as the $450 annual fee charges to your account. Many of you will keep the card citing it’s premium features. Some of you will make the mistake of canceling. Others plan to downgrade (the official term is product change) to a no-annual-fee Chase card like Freedom or Freedom Unlimited.
If you intend to cancel your Sapphire Reserve entirely, I suggest you reconsider. The strategy I lay out below won’t work if you cancel. Downgrading to a free card is a better option for a number of reasons. And you can always cancel the free card later if you insist.
If you’re thinking of downgrading now, to avoid paying the annual fee, DON’T. Not yet, anyway. I’ll explain why, but first some background.
Chase Annual Fee Refund Policy
The first requirement of this exercise is to understand that Chase has two different annual fee refund policies. One for when you cancel your card and a far more generous one for when you request a product change to a different Chase card.
Chase’s policy for cancellations: Once the annual fee hits your account, you have 30 days to cancel for a full refund. After 30 days, no refunds–period. This new, tighter policy went into effect in 2016.
Chase’s policy for product changes: Once the annual fee hits your account, you have
60 about 40 days to downgrade to a no-annual-fee card and get a full refund. However after 60 40 days, a pro-rated portion of the fee will still be refunded to you.
For example: If you downgrade your Sapphire Reserve 6 months (half a year) after your annual fee, Chase will refund $225 (half of $450) of that fee to you as a statement credit–automatically. On the other hand, if you cancel after 6 months, you get nothing! Product Changing is better than Canceling!
Sapphire Reserve Annual Travel Credit
The second piece piece this puzzle is the annual $300 Travel Credit, which is easily the most lucrative benefit of the Chase Sapphire Reserve card. With this simple-to-use benefit, a credit is automatically applied to your first $300 in travel expenditures each year. If you applied for the card before May 21, 2017, your $300 resets in December. Any travel charges that post AFTER your December statement date will count towards next year’s credit.
NOTE: If you applied for Sapphire Reserve on or after May 21, 2017, then your travel credit resets around your approval anniversary.
So, When Should You Downgrade Sapphire Reserve?
Now that you understand Chase’s annual fee refund policies and the travel credit, we can move on with an example.
Let’s say your annual fee is scheduled to hit your account on October 1, 2017. If you’re still reading, this will be true for many of you. Let’s also say that your statements post on the 10th of each month. Therefore, your 2018 travel credit becomes available on December 11, 2017.
If you downgrade as soon as the annual fee posts in October, the charge will be fully refunded and you won’t have to pay it. But what if you go ahead and pay the $450 annual fee when it’s due, and wait to downgrade until the end of December? You’ll have a window of opportunity to use your 2018 travel credit AND still get a large pro-rated portion of the annual fee that you paid refunded to you.
Lets do the math. You pay $450 on October 1 and downgrade by the end of December. This means you use only 3 months worth of your annual fee (October, November, December). That’s 25% of the year. The unused 75% of the annual fee that you already paid will be refunded to you–that’s $337.50. You’re net dollars out of pocket for the Annual Fee is only $112.50 ($450 – $337.50).
However, recall that your travel credit resets on December 11. With a little planning, you can get your entire $300 2018 credit before you downgrade your card at the end of December, 2017. For waiting, and ultimately paying only a portion of your annual fee, you get the FULL 2018 travel credit! That $300 credit only cost you $112.50 AND you enjoyed the benefits of the card for 3 additional months!
For those of you who’s annual fees post September 1, if you downgrade by the end of December, you’ll get 2/3 of your annual fee ($300) refunded. You’ll get the full 2018 travel credit and 4 extra months of card benefits for only $150!
If you can quickly monetize your entire 2018 travel credit before the end of December 2017, it makes sense to hold off on downgrading Sapphire Reserve until then. The $300 credit you receive will more than offset the pro-rated portion of the annual fee that you pay.