A Cost/Benefit Analysis of Keeping the Sapphire Reserve a Second Year

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The Chase Sapphire Reserve® was released over one year ago to a salivating public. That means many of you are looking at whether or not the $450 a year card is worth keeping open, and if it’s not, what exactly your best play might be.

Today I’m going to discuss a process of evaluating whether or not the Sapphire Reserve is worth holding onto for a second year. Placing value on some benefits can be subjective, so adjust as you see fit, and please share your perspective in the comments to help all our readers perform their own cost/benefit analysis.

In a future post, I’ll discuss options and actions you can take depending on the outcome of your cost/benefit analysis–downgrading, canceling, or keeping it open.

How Did We Get Here?

At the end of August 2016, miles and points enthusiasts went totally nuts over Chase’s release of a premium travel credit card, the Sapphire Reserve, and it’s eye-popping sign up bonus. The original sign up bonus–100k Ultimate Rewards for spending just $4,000 in three months–provided a huge return on spending and the litany of benefits meant on top of the bonus points you’d profit anywhere from $150 to $250 despite the $450 annual fee. Too good to be true? Yea, it was. Everyone knew that. It’s still a fantastic card but the sign up offer and benefits package have changed.

From the perspective of speaking with my peers, it’s the card that brought TONS of millennials in the game. Some people stopped applying for cards to get back under their 5/24 limit. Others (ahem–ME) decided it wasn’t worth waiting on as they weren’t anywhere close to getting back under five new cards opened within the last 24 months, but secretly (or not so much?) grew green every time they saw someone pull the metal card out of their wallet. I swear I’m not jealous.

But I’m waxing poetic. It is just a credit card after all 😉

Down to business.

No Matter What Your Situation, Perform a Cost/Benefit Analysis

A cost/benefit analysis will help answer the question of whether or not you’re getting enough value from the card to continue holding it. Assuming you don’t need to close the card for churning purposes, here are the first two steps.

1. Are you getting a retention bonus for keeping the card that is worth more than the annual fee? If so, keep the card. If not, I go to step 2.
2. Are the marginal benefits of holding the card larger than the annual fee. If so, I keep it. If not, I cancel it.

Both steps come down to future-looking value. The annual fee is a cost, and I need to get a benefit at least as big as that cost ($450) by keeping the card.

Step 1: Are you getting a retention bonus for keeping the card that is worth more than the annual fee? 

There are two types of retention bonuses:

1. Automatic
2. Requested via a phone call

The Sapphire Reserve doesn’t come with automatic retention bonus (an automatic retention bonus is annual benefit upon your cardmember anniversary, like bonus points or a free hotel night). That means the only potential retention bonus is one you call to request/negotiate.

There aren’t many data points out there yet about retention bonus offers. I think it’s worth it for everyone to at least call and try, though–it’s just a few minutes out of your day that, while I doubt would erase your annual fee, could possibly knock it down some. If you have a long standing relationship with Chase via other cards, bank accounts, loans, etc…don’t forget the loyal customer angle. Watch this FlyerTalk thread over the next few months to see what kind of offers Chase customers get.

If you end up with a retention offer equal or greater than your annual fee (fat chance, but theoretically), then obviously you should keep the card. The money you will make from the travel credits, lounge access, ability to earn Ultimate Rewards quickly, etc. will more than justify holding it. If you don’t get one/are offered a small credit, continue to Step 2.

Step 2: Are the marginal benefits of holding the card larger than the annual fee? If so, keep it. If not, cancel it.

Let’s take a look at the benefits of the Sapphire Reserve.

$300 Annual Travel Credit

The structure of this benefit changed back in May and is now applied on a card membership year basis versus the previous calendar year basis. If you applied and were approved before May 21, 2017, starting in 2018 your card membership year is now January – December. So if you got the Reserve when it first came out, you’ll likely have gotten $600 in travel statement credits from the first year of card membership. That will no longer be the case looking forward. For the purpose of this benefit your second year of card membership begins in January 2018, so your travel credits will reset then and over the course of the year your first $300 in airfare, flight award taxes and fees, airline fees, hotels, Airbnb, car rentals, cruises, tolls/E-Z Pass, parking, Uber/Lyft, taxis, etc will be offset. After a year of burning through travel credits, you should know whether or not you spend $300 on these things in 12 months.

If you read this blog regularly and/or found it on your own, then I’d say there’s a 100% chance you do. That would bring down the effective annual fee to $150, and that’s not considering any retention offer you might receive.

 Lounge Access

Priority Pass is the world’s largest independent airport lounge access program. Chase Sapphire Reserve® cardholders get free Priority Pass Select membership, which entitles them and everyone in their travel party free access to 900+ lounges worldwide (everything on the list except United Clubs.)

I’ve been in many Priority Pass lounges around the world. They vary in quality, but you can always count on free drinks, snacks, and wifi, and you can usually cobble together a meal with a glass of wine or a cocktail.

This type of Priority Pass membership would cost $399 if you bought it outright. I doubt many of you would pay for the membership outright, but if you would, then there’s very little doubt the Sapphire Reserve is worth keeping.

For the rest (and vast majority I’d wager), valuing this benefit will require a little research on your part by guesstimating how much you might normally spend on lounges (for you AND guests remember, since your travel companions can join for free).

Ability to Rapidly Earn Ultimate Rewards

The Reserve offers 3x Ultimate Rewards points on travel and restaurants. Those are broad categories that include flights, hotels, car rentals, cruises, tolls, parking, Uber, taxis, restaurants, bars, fast food, and night clubs. I imagine many of you heavily spend in these categories, so the Sapphire Reserve drastically improves your ability to earn Ultimate Rewards.

Obviously one of the main reasons to keep a rewards card is the rewards from spending on it. But does the Sapphire Reserve have better earning potential than your other cards?

One way of answering this question is by taking the rewards earned from spending on the Reserve this past year (aside from the sign up bonus) and subtracting the value of the rewards you’d earn from putting that spending on other cards.

If you haven’t already received it, Chase should be sending you a pamphlet (Doctor of Credit has a picture of one here) that makes this part of the analysis a little easier. Take a look in the pamphlet as well as/or in your online account to see how many Ultimate Reward points you earned aside from the sign up bonus. How many you earned coupled with how much you value Ultimate Rewards will help you place a value on this benefit. For reference, we value them at 2 cents each when transferred to airline partners, but you can of course also redeem them for 1.5 cents like cash on airfare, hotels, car rentals, and cruises.

TSA PreCheck/Global Entry Statement Credit

If you haven’t already applied for Global Entry or TSA PreCheck in the past year, you still can and receive up to a $100 statement credit for covering the fee. Whether or not you consider this benefit as offsetting the annual fee depends on how much value saving time/energy/stress in the airport.

Read about Scott’s experience in How and Why I Got Global Entry.

Travel Insurance

The Sapphire Reserve also comes with various travel protection benefits. Read all about them in Travel Protection Benefits of Chase Cards to help you evaluate how much the benefit is worth to you.

Bottom Line

The Chase Sapphire Reserve® has an expensive annual fee of $450. The card came out roughly one year ago, so it’s time to start thinking about what your next move is.

Let’s circle back to our original questions.

1. Are you getting a retention bonus? If so, factor that into offsetting the annual fee.
2. Are the rest of the marginal benefits of holding the card larger than the annual fee?

If you can without a doubt answer yes to keeping the card, congrats! A year from now you’ll have to evaluate again, but for now you can cruise. If you’re not getting enough value to keep the Reserve another year, then hold tight for the follow-up post about downgrading and canceling.