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Yesterday I wrote a post about what I consider to be the single best card duo out there — specifically, the Chase Sapphire Reserve℠ Card and the Chase Freedom Unlimited®.
On that post, reader James K. left the following comment, which I wanted to take a closer look at:
I really don’t see how any unbiased party could recommend the Chase Sapphire Reserve over the Preferred. The CSR has a $450 annual fee, not waived the first year. The CSP has a $95 annual fee, waived the first year. The CSR offers 50,000 points, the CSP offers 50,000 + 5,000 for adding an authorized user. Both trigger the Freedom Unlimited so that’s moot here.
As such, even if a person maximized the travel credit, Mr. CSR is spending $150 for 50,000 points their year while Mr. CSP is spending $0 for 55,000 points. How much spending on travel/dining would Mr. CSR need to spend to come out ahead? Much more than the average person spends in a year, I’d reckon.
Once the CSR lost the 100,000 point signup bonus, I see no “killer app” compared to the CSP.
In many ways I think James is correct, and I’ve often suggested that for many the Chase Sapphire Preferred® Card is a better option than the Chase Sapphire Reserve℠ Card. But there’s a bit more to this, so I think it makes sense to look at a few more of the differences between the cards, and how much they’re really worth to the average cardmember.
The advantages the Sapphire Preferred has over the Sapphire Reserve
As James says, the Sapphire Preferred has a $95 annual fee that’s waived the first year, while the Sapphire Reserve has a $450 annual fee that isn’t waived the first year. However, the Reserve offers a $300 annual travel credit that’s automatically applied to any purchase that qualifies as travel, which includes Uber, parking, etc. To keep things simple, let’s just say that’s worth face value (since most people who would have this card would also spend $300 per year on travel), which means the real out of pocket on the Reserve is $150 per year.
Year one you’re paying $150 more for the Reserve than the Preferred (since the Preferred’s annual fee is waived the first year), and year two and beyond you’re paying $55 more for the Reserve than the Preferred. Also note that you can add authorized users to the Preferred at no extra cost (if that’s something you care about), while it costs $75 to add authorized users to the Reserve.
The Preferred also potentially has a marginally better sign-up bonus. While both cards offer 50,000 points upon completing minimum spend, the Preferred also offers up to 5,000 bonus points for adding an authorized user. I value Ultimate Rewards points at ~1.7 cents each, so I value those 5,000 points at $85.
To keep things simple, let’s say getting the Reserve “costs” you an extra $235 the first year ($150 plus $85), while it costs you an extra $55 in subsequent years.
The advantages the Sapphire Reserve has over the Sapphire Preferred
What are you getting for that extra $235 in the first year and $55 in subsequent years?
- A Priority Pass membership with guesting privileges. This can be hugely valuable if you don’t otherwise have a Priority Pass membership, while it can be worth significantly less if you already have one through another card, like The Platinum Card® from American Express.
- A Global Entry fee credit every four years. This can be worth $100 if you’d otherwise pay for it, while it’s not worth anything if you don’t use it. Keep in mind that you can use this benefit to pay for someone else’s Global Entry enrollment fee.
- Enhanced delay and baggage coverage, though the travel benefits on both cards are excellent.
- The ability to redeem points for 1.5 cents each towards the cost of travel purchases, rather than the rate of 1.25 cents offered by the Sapphire Preferred. This can make a big difference for some, while for others (like me) who prefer to transfer points to one of the Ultimate Rewards airline and hotel partners, that’s not worth much.
- Triple points on dining and travel, rather than double points on dining and travel.
Crunching the numbers
There’s no one size fits all math to this, as you’ll have to decide for yourself how much you value a Priority Pass membership, Global Entry fee credit, the ability to redeem points for 1.5 cents rather than 1.25 cents, etc.
However, it’s easy enough to calculate the breakeven point of triple points vs. double points, at least based on my valuation of points (and you can do the math with your valuation). Both cards offer bonus points on all dining and travel purchases, which includes more things than you’d assume, like Uber, parking, subway tickets, etc.
If you value Ultimate Rewards points at 1.7 cents each (like I do), then you’d have to spend ~$3,235 in years two and beyond on travel and dining to recoup that incremental $55 cost. In this calculation you’ll only want to include money you’d otherwise spend on one of these cards. For example, I spend a lot on airfare (which is travel), and I primarily use The Platinum Card® from American Express for that, since it offers 5x points. So I leave the cost of most airfare out of the above equation.
The first year math is trickier. If we were to say that the value difference between the cards the first year is $235, you’d have to spend ~$13,823 on travel and dining to recoup that. That’s significant. Of course the above math doesn’t factor in the other benefits offered by the Reserve, which you’ll have to crunch the numbers on yourself.
But let’s try the math the other way. I imagine many people are redeeming Ultimate Rewards points as credit towards the cost of a travel purchase. Let’s say you’d redeem Sapphire Preferred points for 1.25 cents each towards the cost of a travel purchase, while you’d redeem Sapphire Reserve points for 1.5 cents each towards the cost of a travel purchase. At that point you’re earning a return of 2.5% on the Sapphire Preferred for dining and travel purchases, and a return of 4.5% on the Sapphire Reserve for dining and travel purchases. That’s a 2% difference, meaning that the breakeven after the first year is just $2,750 of dining and travel spend per year. I think a good number of people who would consider either card would exceed that threshold, especially given how broad the definitions of dining and travel are.
There’s no right or wrong answer, and for that matter keep in mind that you can always apply for the Chase Sapphire Preferred® Card first, and then after a year product change to the Chase Sapphire Reserve℠ Card. In many ways the Preferred is a good starter option, and then based on how you use it you can decide if the Reserve is worth the upgrade.
I don’t think James is off base in suggesting that the Sapphire Preferred is a better option for many. If you don’t spend a ton on travel and dining, and if you don’t value the Priority Pass membership, the Global Entry fee credit, the ability to redeem points for 1.5 cents each towards a travel purchase, etc., then the Preferred may be a better option.
However, I certainly think plenty of unbiased people could recommend the Reserve over the Preferred. What makes the card great is that it offers so many premium benefits with a very reasonable out of pocket. The reason the Sapphire Reserve has been so successful is because it has become popular with people who wouldn’t otherwise pick up a $450 annual fee card. Many of those people don’t otherwise have a card offering a Priority Pass membership, Global Entry fee credit, etc., so they’re getting big value out of those benefits.
I’m curious to hear what you guys think about this!