How to Keep your Sapphire Preferred Ultimate Rewards Points Without Paying the Annual Fee

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Woman shopping on tablet with coffeeWhen Point Savvy’s Barbara Jones said I was leaving free money on the table by doing all of my spending on my debit card and not a credit card, my ears perked up. She explained that if I use my rewards credit card the same way I’d use my debit card – only spending within my means – I would be able to pay off the card each month and avoid acquiring debt from interest on a balance. Plus, I’d earn rewards points for every purchase that I could use toward free travel.

I’d never thought in those terms before, and all of a sudden opening a credit card that earned me rewards seemed like a no-brainer. I did some research and landed on Chase Sapphire Preferred® because of its 50,000 bonus points for spending $4,000 in the first three months. As a young professional on a somewhat tight budget, I wasn’t sure I’d be able to meet the goal. But, meet it I did, mostly thanks to needing to buy a personal computer after I left a job that had provided me with a MacBook Air. I loved working on a Mac, so I invested in a new laptop — $1,500 down toward that $4,000. After that purchase and putting every other expense on the card, I easily met the introduction goal.

Chase Sapphire Preferred® also gives you 2x points on dining and travel – including Amtrak tickets, Uber, coffee shops and Chipotle, which are more my scene than fine dining or frequent air travel. You get 1 point on all other purchases. After putting all of my purchases on the card, I have 56,244 rewards points to use toward hopefully to trip somewhere wonderful. The points are equal to about $700 in travel if I redeem through Chase Ultimate Rewards, which adds 25% value compared to if I book travel directly through an airline or hotel.

I haven’t decided where I will use those points yet. A good friend just moved to Wisconsin, so I might spend the points on a glamorous Midwest getaway. Or maybe I’ll finally get back to Italy, where I lived for a couple of years after college. But, because I’m now a Chase cardholder, those points are mine for the forseeable future, and I don’t need to make a decision right away.

Another decision I don’t need to make right now, but have started thinking about is whether I’ll keep the Chase Sapphire Preferred® card open when the first year is up in June 2017, when I’ll have to pay an annual fee of $95 to keep the card. Barbara wisely suggested I look into opening another Chase card so I can keep my reward points and avoid paying an annual fee. Chase Freedom® and Chase Freedom UnlimitedSM are two card that offer cash back rewards with no annual fee. Below are comparisons between the two cards.

Chase Freedom UnlimitedSM 

Chase Freedom®

Chase Freedom Unlimited card

chase-freedom-wbutton

  • No annual fee
  • Unlimited 1.5% cash back on every purchase – it’s automatic
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 14.24-23.24%. Balance transfer fee is 5% of the amount transferred, $5 minimum
  • Redeem for cash – any amount, anytime
  • Cash Back rewards do not expire as long as your account is open
  • No annual fee
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate
  • Unlimited 1% cash back on all other purchases — it’s automatic
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 14.24-23.24%. Balance transfer fee is 5% of the amount transferred, $5 minimum
  • Enjoy new 5% categories every 3 months like gas stations, restaurants, and wholesale clubs
  • Cash Back rewards do not expire as long as your account is open

So, let’s say I open a Chase Freedom® and spend $500 the first month, $100 of which is spent on whatever category Chase Freedom® is offering 5% cash back. I get $5 cash back from all of my purchase, plus $5 from the $100 I spent in the bonus category. So, that’s $10 rewards, plus the $150 rewards from meeting the introductory goal. Chase Freedom®=$160 cash back the first month. If I’m mindful of the bonus categories, this might be the card to get, because I’d save an extra 5% just for paying with the credit card. If I open a card before Dec. 14, 2016, I can get 5% cash back on department store purchases. So, a winter coat at Macy’s for $200 would actually only cost $190 – that’s savings without having to do anything.

If I spend the same $500 amount with Chase Freedom UnlimitedSM, I would get $7.50 cash back at 1.5% on all purchase plus the $150 intro bonus cash back. It seems like the Freedom Unlimited would require less thought, because every purchase earns 1.5% cash back. But, if I wanted to play the bonus category game, and only use the Chase Freedom® on those specific 5% cash back purchase, I might be better off with the Freedom.

Regardless of whether I open a Chase Freedom® or Chase Freedom UnlimitedSM card, by remaining a Chase card holder, I’ll still be able to keep the rewards points I’ve been acquiring since opening my Chase Sapphire Preferred® card. But, if I close my Chase Sapphire Preferred®, I’d stop earning points that I could use toward travel. It really does depend on what my travel plans will be in the upcoming months.

Is the $95 annual fee worth it? Let me refresh my middle school math skills. Chase rewards points are worth about 1-1.25 cents each, so 100 points is $1 to $1.25. I’d need to get at 7,600 to 9,500 points to break even for shelling out $95 for the annual fee before I even start actually gaining rewards that give me something more. Because I spend about $700/month on non-bill-related purchases, the average I’d spend on the card in a year is $8,400. Let’s say 20% of that is on dining and travel. That $1,680 on dining and travel at 2x points per dollar is 3,360 points. I’d get 1x points for the $6,720, and add 6,720 points a year. That means on average, I’d earn 10,080 points a year. If 7,600 to 9,500 of those points are the equivalent of covering the $95 annual fee, I just don’t think this card is worth keeping more than the first year, which has no annual fee.

I’m almost certain I’ll be switching to the Chase Freedom® or Chase Freedom UnlimitedSM card, unless I land some job that requires me to travel a ton where I can rack up enough points to make keeping the Sapphire Preferred worth it. I still have a few months to think about it, but while I’m thinking I’ll keep building up my credit and earning points with the Chase Sapphire Preferred®.

Chase Sapphire Preferred®

Chase Sapphire card

  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $625 toward travel when you redeem through Chase Ultimate Rewards®
  • Named a ‘Best Credit Card’ for Travel Rewards by MONEY Magazine
  • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
  • Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
  • No foreign transaction fees
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
  • No blackout dates or travel restrictions – as long as there’s a seat on the flight, you can book it through Chase Ultimate Rewards

Bonus
50,000 Points

Intro APR
N/A

Ongoing APR
16.24% – 23.24% variable

Annual Fee
$0 first year; then $95

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