Why you should cancel the Chase Sapphire Reserve card

The Chase Sapphire Reserve is arguably the king of premium travel credit cards. In spite of the recently increased annual fee, the card still carries a lot of value. However, with travel almost negligible for now, does it still make sense to carry it in your wallet? Should you renew it even if you have no possible sign as yet that travel would return to normal any time soon? Let’s have an analytical look at the benefits and see which ones make sense in the current climate.

Chase Sapphire Reserve Basics

Before we analyze the benefits, let’s make a few basic assumptions. The card charges a $550 annual fee. Given that most of us are frequent travelers, we’ll easily use the $300 travel credit each year. If you order DoorDash, you’ll also use the $120 credit. Please note that at many restaurants, DoorDash charges higher prices and adds fees to your bill. So let’s assume that you utilize the full travel credit and the DoorDash benefit is valued at $100. That leaves about $150 in value still left to redeem. Now, if Chase gave you that extra $100 credit recently, then your actual cost comes down to $50. In that case, it may still make sense to carry the card. This is a best case scenario. Given the current economic and political conditions, actual benefit use may be much lower as consumer spend shrinks.

Useful Benefits

From a practical standpoint, you can still use these benefits even while sitting at home:

• Travel Credit:  If you cannot travel, you can simply buy a gift card
• DoorDash: If DoorDash serves your area, you can order food online

Useless Benefits

When you’re sitting at home, these benefits are rendered useless. This is not Chase’s or the Sapphire Reserve card’s fault, it’s just the state of pubic health and economic crisis that we find ourselves in. In fact, JP Morgan Chase CEO Jamie Dimon even stated publicly that we’re entering a “bad recession”,

• No foreign transaction fees: You can’t leave the country right now, so this benefit is not useful and will not be at least for the next few months.
• Global Entry/TSA Pre-check: It may be many months before you head to the airport, until that time you’re not using this benefit. Also, your benefit is valid for 5 years if you already have it. So having the Chase Sapphire reserve won’t really help you much.
• 3x on travel and dining: This is partially useful, especially if you’re ordering from a restaurant and then picking up food. The 3x on travel part is redundant for now.
• Lyft Pink Benefits/10x on Lyft rides: Rideshare companies are going to be hit really hard. Social distancing is the new normal. It will take many months before people embrace the though of riding in someone else’s car.
• Priority Pass: Lounges are closed and will be for a while. That settles the argument.
• Car Rental/Silvercar/Car Insurance Benefits: This is similar to the ride share benefit. Even after travel picks up, it will be many months before people happily want to hop into a car they don’t own.
• Trip Insurance/Baggage Delay/Lost Luggage/Trip Delay/Travel Insurance: By many estimates, it will be at least 18 months before the travel industry could return to normal. Until then, if you’re not going to travel a lot, you won’t be using any of these benefits.

Scenarios: 90/150/240/365 days

Scenario 1: If you’re a road warrior who primarily travels for work, you may be able to hit the road 90 days from today. However, travel may still be curtailed and won’t be at the same pace as it was until 2019. In that case, you’ll still lost almost 90 days of value in annual fees.

Scenario 2: If you travel frequently for leisure, you may be tempted to hit the road in the next 120-150 days, once you see many corporate travelers get back to their routine and operations return to normal. Even then, you’l lose close to 4-5 months in your annual fee value.

Scenario 3: If you’re the occasional leisure traveler who travels with family for a vacation or two, it may well be 240 days or more before you even feel safe to take your family out for a vacation. In this case, you would’ve lost easily over 8-9 months of value in your annual fee.

Here are a few deciding factors. How soon is your annual fee due? Has Chase already provided you with a $100 credit. If you’ve just paid the renewal fee and haven’t received the $100 credit, then when would you be most comfortable to book travel, let alone set foot on a flight in 2020? By most estimates, it may well be early 2022 by the time the travel industry recovers fully .

There’s an opportunity cost as well. If you downgrade or cancel the Sapphire Reserve, you can go for a credit card that offers a low or no annual fee, but instead helps you earn points on grocery spend. For example, I’ve downgraded my Sapphire Reserve and I’ve shifted spend to my Amex Gold Card, which gives me 4x on groceries and dining.

Also, as View from the Wing notes in this post, we may be entering a period of more travel restrictions instead of less.

The Pundit’s Mantra

As I mentioned in the intro, the card still has great value proposition. However, if we can’t travel in the near future, we can neither earn the points nor use the benefits. If you are sitting on the fence, here’s how you should think about it when it comes up for renewal. How comfortable will you be to hit the road right after travel gradually opens up? Will it be many months by the time you start traveling again? If the answer to the second question is a yes, then you’re more likely to pay the $550 and not use most of the card benefits.

This argument applies to other premium travel credit cards as well. They’re great when you’re on the road. However, how much value do they carry when you cannot even leave your house, let alone travel or go out for dinner at a restaurant? It may be many months or even up to a year before things get back to normal. If you’re not going to be able to utilize the benefits, you’re leaving $150 on the table.

Another option you could consider is to downgrade the card to the Sapphire Preferred or one of the Freedom cards. You’ll still keep your credit history and you’ll always have an option to upgrade in the future. The Freedom cards are actually a better option as you’ll pay no annual fee as you sit and wait this period out.

In a subsequent post this week, I’ll be elaborating on frameworks to analyze credit card annual fees from a pricing psychology perspective.

What do you think about the value proposition of premium travel credit cards like the Chase Sapphire Reserve, given the current economic and public health crisis? Let us know in the comments section.

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