Should You Pay the Annual Fee for the Chase Sapphire Preferred?

By | March 8, 2016

Chase Sapphire Preferred (CSP) provides a number of additional benefits that the Chase Freedom card doesn’t offer. However, those extras come at a cost. After being waived the first year, the annual fee of $95 will kick in. Is it worth paying? I’ll walk you through the extra benefits and do the math for you with a calculator at the end of this article.

The premise behind this exercise is that you are deciding whether to keep your CSP and pay the annual fee or downgrade it to a Freedom card to save the $95 (or simply cancel if you already have a Freedom). To make this determination, my calculator requires only 4 variables:

  • Your Redemption Value of CSP Ultimate Rewards points
  • How many Ultimate Rewards points you earn in a typical year
  • Your Value of Additional Benefits
  • Your Foreign Currency Spending

Note that each of the variables contains the word “you” or “your”. Don’t trust anyone that answers the question in the title without getting a few more details from you first. Your spending habits are unique and other credit cards you already have might affect your responses.

Lets go through each variable in detail so you know what to enter for each input box.

Value of Each CSP UR Point:

So much credit card marketing revolves around earning points for spending and earning bonus points for spending in certain categories. The real key is understanding what those points are worth when you finally go to redeem them–what’s known as the redemption value. This is the single most important value generator of having a CSP.

Both CSP and Freedom earn points in the Ultimate Rewards program. If you are only a Freedom cardholder, each of your points is worth 1 cent–regardless of how you choose to redeem them. Freedom is marketed as a cashback card since the redemption value of each point is fixed.

When you have a CSP, the redemption value of all your points earned with both cards (points earned by Freedom can be transferred to CSP) is much greater. They can now be redeemed for travel on the Ultimate Rewards website at 1.25 cents per point (25% increase over having only Freedom). They can also be transferred to frequent flyer or hotel loyalty programs where you can often realize upwards of 2 cents and occasionally 5 or 6 cents per point. I’ll default to an extremely conservative value of 1.8 cents per point here, but you should feel free to change it.

Annual UR Points:

We’ve already determined that each Ultimate Reward point is worth more when you hold CSP than when you don’t. How does that translate to an annual dollar value? My calculator needs to know the rough number of UR points you expect to earn in a typical year. For example, lets say you spend about $2000 a month, some in bonus categories, earning approximately 2200 points. That amounts to 26,400 points per year. Enter that number for Annual UR Points.

$ Value of Benefits:

CSP includes some unique benefits that may or may not be of value to you. My favorite is the Auto Rental Collision Damage Waiver. It is primary coverage which means you do not have to file a claim with any other source of insurance before you can receive coverage under this benefit. Many credit cards include secondary insurance (covering what your own insurance company doesn’t cover). For comparison, American Express offers Primary coverage at $20 per rental.

CSP also offers generous trip delay and trip cancellation insurance, price protection and extended warranty protection. I personally place a total value of $20 per year on all these benefits–again you can change it as you like. I can get some of these benefits through other cards that I carry. But for the ones where CSP is unique or most comprehensive, I’m sure to use this card.

$ Foreign Currency Spend:

CSP doesn’t charge any Foreign Transaction Fee while Freedom charges 3%. I have other cards that offer this benefit, so I value it at $0 in the calculation below. If you do any foreign travel and expect to take advantage of this benefit, enter the $ value of how much you expect to charge to CSP in a foreign currency over the course of the year.

Calculator

Enter the values that you feel are most appropriate based on the definitions above and your personal spending habits. After you press the “Calculate” button, the total “value” of the CSP will be displayed. If that value is greater than the $95 annual fee, it’s best to keep the card.

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Let me know your thoughts on this calculator or suggestions for its improvement in the comments below.

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