topic Re: Is the Chase Sapphire Preferred worth carrying permanently? in Credit Cards

Is the Chase Sapphire Preferred worth carrying permanently?

HiLine — Sun, 06 Jan 2013 23:44:55 GMT

I did a little mathematical analysis to help you determine if you should hold a CSP based solely on cash back rewards.

UR points are worth 2 cents if you transfer the points to travel partners.

You earn 2.14 points on travel and dining purchases and 1.07 points elsewhere.

If you travel and eat out a lot, let's say one third of your purchases are on these categories of spending.

The annual fee is $95.

There are 2 cards that offer flat 2% cash back but carry no annual fees: Fidelity and Priceline.

----------------------------------------------------------------------------------------------------------------------------------------------------

For each $3,000 spending, which consists of $1000 in travel and dining expenses and $2000 in other expenses, the CSP will give you 2.14x1000+1.07x2000=4,280 points, worth $85.6. The Priceline card would give you $60. So the net gain is $25.6.

In order to break even, you'd need to spend at least $11,000 on the CSP per year, or about $1,000 per month. This assumes that you transfer all UR points to travel partners.

It is also assumed that you won't be making purchases in a foreign currency. If you will, for each $1,000 in such spending, the CSP gives you a $10 advantage, which reduces the amount of overall spending needed by about $1,000.

The bottom line is, the CSP is worth carrying for eternity if you travel and eat out a lot and spend more than 11k per year through credit cards.

Any input? Did I make any unreasonable assumption?

Re: Is the Chase Sapphire Preferred worth carrying permanently?

jsucool76 — Sun, 06 Jan 2013 23:55:59 GMT

Im not exactly a mathematician, but even if you only did the 1% cash back (theoretically you never dine out or travel, and afaik UR points are 1 cent per point when converted to cash) you'd only need to spend 9500$ to break even, so when you mix in the 2% on travel and dining, you only need to spend less. Where did 11,000 come from?

Re: Is the Chase Sapphire Preferred worth carrying permanently?

HiLine — Sun, 06 Jan 2013 23:58:27 GMT

@jsucool76 wrote:
Im not exactly a mathematician, but even if you only did the 1% cash back (theoretically you never dine out or travel, and afaik UR points are 1 cent per point when converted to cash) you'd only need to spend 9500$ to break even, so when you mix in the 2% on travel and dining, you only need to spend less. Where did 11,000 come from?

There's an opportunity cost of 2% on each dollar purchase because of the no-annual fee, 2% cash back cards.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Anonymous — Mon, 07 Jan 2013 00:07:06 GMT

CSP has a annual fee of $95, im still in the first year of mine so its free the first year.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

jsucool76 — Mon, 07 Jan 2013 00:01:44 GMT

There is also an opportunity cost on the fidelity amex, because im fairly certain you need to have some sort of account with them (401k or IRA or something)

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Anonymous — Mon, 07 Jan 2013 00:02:46 GMT

The fidelity AMEX has really interested me lately, as I have 5-6 rewards cards but would like to get one card for everything and use it for all of my spending

how hard is it to get compared to say an AMEX revolver, CSP, or BOA card?

Re: Is the Chase Sapphire Preferred worth carrying permanently?

HiLine — Mon, 07 Jan 2013 00:07:02 GMT

@jsucool76 wrote:
There is also an opportunity cost on the fidelity amex, because im fairly certain you need to have some sort of account with them (401k or IRA or something)

Well then, let's use the Priceline for the base card.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Anonymous — Mon, 07 Jan 2013 00:08:20 GMT

@jsucool76 wrote:
There is also an opportunity cost on the fidelity amex, because im fairly certain you need to have some sort of account with them (401k or IRA or something)

I believe you can open up a savings account with them with no fees

Re: Is the Chase Sapphire Preferred worth carrying permanently?

jsucool76 — Mon, 07 Jan 2013 00:08:38 GMT

Still has an opportunity cost... Its juniper/barclays... Fear of AA for new accounts.. XD

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Anonymous — Mon, 07 Jan 2013 00:17:03 GMT

@Anonymous wrote:
@jsucool76 wrote:
There is also an opportunity cost on the fidelity amex, because im fairly certain you need to have some sort of account with them (401k or IRA or something)
I believe you can open up a savings account with them with no fees

Yes, I have an account with them that had $0.19 in it for years (from a share sale many years ago), no fees. When I got my Fidelity Amex, I linked the card to that. Just got my first $50 added there, and immediately transferred it to my real bank account. So yes, I could potentially have been earning interest on that 19 cents, but a very small oppurtunity cost.

Re the analysis: CSP and the 2% cards aren't of course the only choices. So for example, if eating out is a major portion, then something like Citi Forward would do well.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

jsucool76 — Mon, 07 Jan 2013 00:25:02 GMT

Im just trying to point out that everything has an opportunity cost, so thinking of only money (annual fees) isn't always the best thing.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

HiLine — Mon, 07 Jan 2013 00:28:35 GMT

@Anonymous wrote:

Re the analysis: CSP and the 2% cards aren't of course the only choices. So for example, if eating out is a major portion, then something like Citi Forward would do well.

I picked the 2% cash back cards as the bare minimum for opportunity cost, but these cards, as well as the CSP, are very versatile and offer consistently high cash back for all categories of spending. For consumers with highly skewed spending patterns, there are definitely better cards out there. Citi Forward is a great example!

Re: Is the Chase Sapphire Preferred worth carrying permanently?

HiLine — Mon, 07 Jan 2013 00:30:01 GMT

@jsucool76 wrote:
Im just trying to point out that everything has an opportunity cost, so thinking of only money (annual fees) isn't always the best thing.

Any numerical estimate for such an opportunity cost is welcome. If it's near 0, then let's call it 0 for the sake of simplicity.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Anonymous — Mon, 07 Jan 2013 00:32:34 GMT

Edit: this was to jsucool76's comment!

I don't know what that means in a practical sense! The OP was doing a straight-forward financial analysis, and when asked about the $11K, explained that it was more than $9,500 because of the cash back use of a 2% card would generate on that spend. So clearly talking only about money here, and that makes sense if the Fidelity Amex account had fees etc.

In your more general sense, yes, everything has an opportunity cost, but saying that doesn't really get the discussion any more forward.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

youngandcreditwrthy — Mon, 07 Jan 2013 01:24:15 GMT

You guys and your crazy math hahah:-P

Re: Is the Chase Sapphire Preferred worth carrying permanently?

youngandcreditwrthy — Mon, 07 Jan 2013 01:24:55 GMT

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Open123 — Mon, 07 Jan 2013 01:28:25 GMT

For spending ranging from $12k - $15k, I think the best are no fee cash rewards cards.

To wit, all non bonus spending on 2% Fid Amex with specialty spending on Disc, Freedom, Forward, and the rest on US Bank Cash+ 5% categories. Forex spending on the BofA Travel card with chip, no forex, and no annual fee for 1.5 rewards. Avg roe should be about 3.5% - approx $450 - $500 per year.

For higher spending, the fee travel cards are more compelling. Mainly, because when spending increases, the most important aspect isn't the bonus spending, but not have caps on said spending. All issuers have caps of some kind. 5% categories are capped at $1,500; Priceline bonuss capped at 2,500; etc...Amex and Chase are two of the only issuers who have 0 caps on regular spending. For instance, let's say you pay vendors $100,000 per year. MR points/UR points more valuable, or 2% cash? When points get into the 100s of thousands, very valuable redemptions can be had which easily out paces 2%. Moreover, Amex business blue Open has 30% bonus on all points earned.

In my estimation, if one spends around $12k - $15k, cash rewards no fee cards are the best option. For those who spend north of 30K, the annual fee rewards cards are a much more compelling value. For those who spend 100k+, then only the Amex or Chase uncapped rewards would suffice.

As per the CSP, I think one who travels, dines, spends time abroad and spendings around $12k - $15k, there is no better value.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

mikka1 — Mon, 07 Jan 2013 02:18:13 GMT

Just will try to add my 2cents to the discussion...

First, I think we need to separate two types of comparison:

1) Compare CSP with hypothetical portfolio of other cards

2) Compare CSP with one specific card

If we are talking about #1, then I'am almost 100% sure we will quickly find a combination of 3...4 or more cards (even no-AF ones) that will economically be better than CSP alone. If we also take into account cards with rotating categories, CSP will lose this battle for sure.

Although I think that this comparison is not 100% fair. It is cherrypicking and I doubt an average consumer (one who doesn't spend all nights long on myFico :-) ) will be able to properly handle all those cards to maximize his gain. CSP is more positioned (at least in my view) as a kind of "everyday use card"...

Talking about #2 I would try to compare it with BofA 1-2-3 Travel rewards (1.5% cashback on all purchases). One feature they have in common is zero foreign transaction fee, so even if travelling with those 2 cards (CSP and BofA Travel) they will be more or less equal. So, the only remaining calculation we have is to subtract BofA cashback of 1.5% on all from assumed weighted average of CSP cashbacks (if you plan to spend half on 2pts categories and half on 1pt it will then be 1.5pts on average which will lead to 1,605% with 7% bonus) and divide $95 by that number. So, in the case above it will be 95/(1.605%-1.5%) = $90 476.

Now, we can play around with spending patterns. Assuming that all spend will be in 2pts it will be 95/(2.14%-1.5%) = $14 844 - much better already!

And finally, we need to determine how your spending pattern (travel&dining vs other spend) should look like to get any gain at all (just looking for a theoretical point).

Let X be the share of your spending for travel&dining, then solving the following equation for X:

x*0.02 + (1-x)*0.01 = 0.015 / 1.07

we come up with X = 40.2%

What it means is that if the share of your spending on travel & dining on CSP is less than 40%, than it will NEVER be better than BofA 1-2-3 Travel rewards.

More you spend on travel&dining relative to other categories, less you need to spend overall to make any gain compared to BofA 1-2-3 Travel rewards.

Another interesting result is that even if you have no AF for CSP (for the 1st year) in order for it to be better than BofA 1-2-3 Travel Rewards you need to maintain at least this 40/60 split for travel&dining vs other spending. Otherwise BofA is better for you...

It seems I don't really want CSP anymore after these calculations ))))))))) Maybe only for a sign-up bonus :-))))

Edited: a couple of typos fixed

Re: Is the Chase Sapphire Preferred worth carrying permanently?

Open123 — Mon, 07 Jan 2013 02:29:20 GMT

Mikka - Nice analysis!

The BofA Travel rewards is really an excellent card, especially if you have a checking account. If you had an investment account/or deposits of $50K (say, an IRA), you can get the 2% Travel Rewards with no annual fee.

Only reason to opt for Chase or Amex would be the travel rewards programs.

Re: Is the Chase Sapphire Preferred worth carrying permanently?

nickn86 — Mon, 07 Jan 2013 02:29:31 GMT

@Open123 wrote:
For spending ranging from $12k - $15k, I think the best are no fee cash rewards cards.

To wit, all non bonus spending on 2% Fid Amex with specialty spending on Disc, Freedom, Forward, and the rest on US Bank Cash+ 5% categories. Forex spending on the BofA Travel card with chip, no forex, and no annual fee for 1.5 rewards. Avg roe should be about 3.5% - approx $450 - $500 per year.

For higher spending, the fee travel cards are more compelling. Mainly, because when spending increases, the most important aspect isn't the bonus spending, but not have caps on said spending. All issuers have caps of some kind. 5% categories are capped at $1,500; Priceline bonuss capped at 2,500; etc...Amex and Chase are two of the only issuers who have 0 caps on regular spending. For instance, let's say you pay vendors $100,000 per year. MR points/UR points more valuable, or 2% cash? When points get into the 100s of thousands, very valuable redemptions can be had which easily out paces 2%. Moreover, Amex business blue Open has 30% bonus on all points earned.

In my estimation, if one spends around $12k - $15k, cash rewards no fee cards are the best option. For those who spend north of 30K, the annual fee rewards cards are a much more compelling value. For those who spend 100k+, then only the Amex or Chase uncapped rewards would suffice.

As per the CSP, I think one who travels, dines, spends time abroad and spendings around $12k - $15k, there is no better value.

Citi Forward is also uncapped now.

I think for the CSP it is best to also have a Freedom you can transfer the 5% UR purchases over to the CSP (and then possibly over to a FF program).