In the aftermath of the revamp of the Sapphire Reserve credit card, I’ve been asked whether I would upgrade my Sapphire Preferred card back to it (I downgraded to that to get the 100k welcome bonus that was offered a little while back), given these changes. This made me realize that I’ve never directly address how I think about the ‘value’ or ‘worth’ of a credit card, yet it’s a critical part of the question of whether to apply for a card or not. So, I want to address that here.

The key word is ‘justify’, because for a card to make sense, you need to be able to justify the annual fee. And of course this is not just about the Sapphire Reserve – there are many credit cards out there that carry annual fees, some higher than others. So think of this article as a general guide to how I go about justifying a card’s annual fee, and with that deciding whether a card ‘makes sense’ for me.

1. What I mean by ‘justify’
2. The value of a card comes from three categories of perks
   1. Points earning
   2. Credits
   3. Rolling perks
3. Summary

What I mean by ‘justify’

When I talk about ‘justifying’ the annual fee, I mean that your are able to get a return on investment: you invested $95 up front to use a card (which is the card’s annual fee), so now can you get back at least $95 of value back from it? That value will come from the combination of different perks as well as the points accrual that you get from using the card to pay for your purchases. Depending on the card’s earning structure and various perks, the annual fee will be offset or not, and that’s what this is all about.

Let me emphasize one thing: it’s common to see on Facebook or Instagram posts that certain credit cards are hugely beneficial and are ‘really worth it‘. But, the only person that can know that for sure is you. You need make a personal valuation of a card to understand it’s true benefit to your situation, and that’s what this guide should have you get started with.

The value of a card comes from three categories of perks

Credit card perks can usually be divided into three different categories, and together these categories pose the value proposition of the credit card. As such, to justify the annual fee, you need to assess the benefit you get out of these categories. These are (1) the points you earn through the earning structure of the card, (2) credits that you receive when you buy particular services or products, and (3) rolling perks. I’ll explain these one-by-one.

Points earning

As a principle, credit cards will provide 1 point per dollar for a purchase. However, certain spend categories will get you bonus points. Examples are Dining, Travel, Gas and Groceries, which can earn anywhere from 2 to 3 points per dollar with many cards. The aggregate of such ‘bonus points earning categories’ is referred to as the earning structure of the card, and this represents the basic value proposition of a card. There are two things to be aware of:

• While a category such as ‘Travel’ is easy enough to understand, card issuers may add conditions, and this is where you need to pay attention. For example, you may get bonus points on Travel, but only if booked through the card issuer’s own Travel Portal. Or, bonus points are only earned for ‘Travel’ purchases that include Hotel or Flight purchases, but not local transit (subways, trains, etc).
• It’s important to understand that the ‘categories’ are based on what the card issuer’s definition of a business is. For example, you may think that a particular bakery in your town counts as ‘dining’ and should earn 3x points, while the card issuer actually has it defined as a regular store that only earns 1x points. It is helpful to check your card’s statement to see which stores gave you extra points and which didn’t. Knowing these things will give you the opportunity to use a different card that may grant more points.

Those are the primary details you need to be aware of to understand where a credit card can get you the most points. How do you put a value on this? It’s actually quite simple:

• Are these categories that you actually use? It’s great if a card gives 5x points on travel booked through their travel portal, but if you never book your travel that way, it amounts to zero value for that category. And ‘what if I’ll need/use it later’ also amounts to zero value…
• Do you have other cards that generate the same or more points in that category? There is little point in a card’s category if you already have a card that generates points at the same or a better level.

Ask yourself these questions about every category of a card’s earning structure, and you should be able to estimate whether the card’s earning structure works for you or not.

Credits

Credit-type perks have become very popular, and for good reason. In theory, they are straightforward: the credit card issuer will reimburse a certain amount of money upon purchasing certain services or products. Think a $300 credit for buying takeout through DoorDash: when you place an order with DoorDash with your card, the card issuer will automatically reimburse (part of) the purchase. Sounds good, right?

Obviously the card issuer is not just gonna give you ‘free’ money that easily. Except, it’s not ‘free money’ at all! Remember: you paid an annual fee upfront to unlock access to these ‘reimbursements’, so if you don’t use them, you quite literally paid an upfront fee for nothing. So, it’s in your best interest to understand the real value of credits to your situation.

How do you go about valuing credits? The good news is that because credits have an actual dollar value, you can calculate what part of the credit you can reasonably expect to get, and apply that against the card’s annual fee:

1. Take note of the category or merchant that the credit applies to and ask yourself: is this something you ever spend any money on? This gives you an idea of the usability of the credit for you. For example, you’re probably more likely to regularly spend on takeout through DoorDash than dining at select, high-end restaurants. And if you never really spend any money on a category that a credit is for, consider the value of that credit to be zero, since it’s unlikely you will get to use it at all.
2. If the credit is for a category or merchant of interest, look at the reimbursement schedule and ask yourself how practical this schedule is. Specifically, how challenging will it be to maximize the credit, taking note of how the credit is broken up over the year. It’ll be much more challenging to maximize a series of small, monthly credits, rather than one big one. For example, for a monthly takeout meal credit, you may assume that you’ll only get back 70% of it or so, simply because you may forget to use it.
3. Finally, if you find that the credit will be useful to you, take note to see if it’s automatic or requires enrollment! In some cases, if you don’t enroll, a credit will not be applied…

Once you have gotten yourself an idea of how much of a credit is useful to you, you can ‘deduct’ it off of the annual fee. Do this for all credits to see how they factor into your personal valuation of the card.

Rolling perks

These perks tend to be simple and easy to use, beyond perhaps requiring a one-time enrollment. These sorts of perks can be very value and typically are some kind of status or memberships. Thus, ‘rolling’ means it’s ongoing without needing your input. It’s just there. For example, a bunch of credit cards come with a Priority Pass membership, to give you lounge access. Other memberships and services that you can make use of are loyalty with car rental companies and complimentary streaming services.

Despite the ease of use of such perks, you still need to put some sort of value on these because there is a real possibility that you end up never using it, and in that case the value of such a perk will be zero for you. That’s not so easy, since a direct dollar value usually can’t be assigned so easily. As such, my recommendation is to consider how frequently you would use it, and when you do, what sort of benefit you’d get out of it:

• Loyalty perks: The most common status that a credit card provides is with rental car agencies, but some non-branded cards, and especially hotel co-branded credit cards, give status with a hotel group. For example, the IHG One Rewards premier card gives you Platinum Elite status with IHG, as does the recently revamped Sapphire Reserve. The benefits of loyalty are only capitalized on when you rent with the relevant company, and that means there’s an opportunity cost: after all, if you stay at one hotel because of loyalty, you can’t stay anywhere else, even if it may have been a nicer hotel or present a better deal. As such, consider if you like the company, including their service, locations and prices, and consider if you’re likely to work with them, and how often that may be. After all, keeping a credit card for status you use twice a year may not be useful.
• Lounge access: Lounge access is only useful if you have the opportunity to enter the lounge, and that means not only traveling by air, but also traveling through airports where there is a lounge that’s part of the perks. Most lounge access perks will give you lounge access at major airports, so if you leave near one (think JFK, LAX, SFO, DEN etc) these perks will be useful. Also, keep in mind that these perks also tend to make more sense if you mostly fly domestic or if you fly economy, when lounge access is not provided.
• Streaming services: Albeit not very common (yet), but I mention this because the revamped Sapphire Reserve includes an AppleTV+ subscription as a perk. Normally this is $9.99 per month, so this could be a $120 savings. However, if there’s nothing you particularly like on AppleTV+, it’s a moot point.
• Lyft, Uber and DoorDash memberships: These sorts of memberships may give you free priority pickups or expedited delivery, and I’d argue that they are the most useful perk for the average consumer. That said, these savings only start to really add up with frequent use. As such, you’ll need to think how often you use them. I have friends that Uber everywhere or order takeout every week, and I have friends that do it once every few months. In the prior case, these memberships can represent great value, while in the latter they really don’t.

In summary, the key to valuing rolling perks is ‘frequency of use’. After all, memberships are only useful if you actually use them, and use them often enough that they represent a significant return on investment. And this can be in one of two ways: either you use one or two of such perks often, or you use combination of all perks with some frequency. In both cases, you should be able to get to a place where you cna get enough use.

Summary

When you think of getting a new credit card, it’s key to put some sort of personal value on the different perks and benefits that the credit card could give you. In this post I give a breakdown of the different kinds of perks that crtedit cards may offer and I give you some guidelines on how to consider the kind of value they could offer you. Keep in mind that this value is highly personal and you absolutely have to consider your personal situation.

Perks cover the points earning structure, any credits, as well as rolling perks. For the earning structure, consider whether they address purchases that you’re likely to make, and whether other cards don’t already offer the same value. For credits, consider if they target merchant or purchase categories tht make sense for you, as well as whether the credits are broken up over months, quarters or years, which may, represent additional hurdles to maximizing them. Finally, for rolling perks, the key is to assess how often you’re likely to use them, and if you do, what sort of benefit you’ll realistically get.

Going through this sort of analysis should help you put some dollar value to the perks, which you can then ‘deduct’ from the annual fee and allow you to see if you’ll end up getting ahead of it, or whether you’re going to be paying extra for nothing.