When John Liston, 26, applied for the Chase Sapphire Reserve℠, he wasn’t deterred by the card’s $450 annual fee. That’s partly because he didn’t see it as a $450 annual fee.
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“I don’t have a car, and for me, I knew I could easily blow through $300 with Uber and Zipcar every year just getting around Boston,” he says, referring to the card’s $300 travel credit, which is applied automatically to travel costs, including those ridesharing and car rental services. “When you do the math there, you’re looking at just $150 in a fee.”
As a frequent flyer living in Boston and working at a startup, Liston estimates that he also gets hundreds of dollars of value from the card’s Priority Pass Select membership, which gives him access to more than 1,000 airport lounges internationally. He says he’s squeezed multiple airline trips and a car rental out of the sign-up bonus — which was 100,000 Ultimate Rewards points at the time he earned it but has since been cut in half — with points to spare.
Liston isn’t the only one doing these back-of-the-envelope calculations. Despite annual fees for premium credit cards that can run north of $400, issuers say customers are clamoring for them. With travel benefits that can easily offset those fees, premium cards may seem for some travelers less like a splurge and more like a practical purchase.
Frequent travelers find a golden goose
The travel industry is booming. Companies emerging in the so-called “sharing economy” — such as Uber, Lyft and Airbnb — have made travel more accessible to more people.
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Airline travel also is becoming more common. In 2016, the number of passengers boarding planes reached new highs for both domestic and international flights, according to data from the Bureau of Transportation Statistics going back to 2002.
Considering that, it’s no surprise that there’s more interest in premium cards, which commonly include these benefits:
- Travel statement credits or airline fee credits, worth between $200 and $325 a year. Airline fee credits cover checked baggage fees and upgrade charges, while travel statement credits cover a larger array of travel expenses.
- Airport lounge access, which can cost upward of $400 a year
- TSA PreCheck or Global Entry reimbursement. The former costs $85; the latter costs $100; both last five years.
- Transferable points, which can be moved to major airline loyalty programs and potentially redeemed at a higher value
These perks appeal to people like Lou Haverty, 37, who works in finance and travels to visit clients as often as five to six times a month. Haverty, who blogs about his travels on The First Class Travel Guide and lives in Philadelphia, applied for the Citi Prestige® Card about two years ago.
“You look at the annual fee of $450, and you say, ‘If I’m going to travel anyway, [I] get $250 toward airfare,’” he says. “So you’re really looking at a $200 annual fee.” He used the card on a recent vacation, visiting four countries — Germany, Australia, Singapore and the United Arab Emirates — in just two weeks.
To pay for a business-class flight from Singapore to Frankfurt, Germany, he transferred his Citi ThankYou points to Singapore Airlines’ frequent flyer program. He estimates that he got about 4.7 cents out of each mile, without taking taxes and fees into account — far more than the usual 1 cent per mile. He also used the card’s complimentary fourth-night stay benefit in both Germany and Australia.
“I wanted to come up with the most expensive possible trip I could take and pay the least amount of money for it,” he says. The outsized benefits on his premium card made that possible.
Issuers find a hungry audience
These days, issuers are marketing premium credit cards to well-off consumers in general — not just the super-rich.
Between 2012 and 2014, for households reporting incomes of $150,000 to $199,000, mean estimated credit card spending grew 18.3%, according to a 2016 report from the Mercator Advisory Group. This inspired more credit card issuers to offer rewards that appealed to the lower end of the affluent market, according to Mercator.
Perhaps the utilitarian benefits on the Chase Sapphire Reserve℠ — like the 3 points earned per dollar spent on dining and travel — made the card resonate particularly with the well-off-but-not-millionaires consumer segment.
“While we knew we had designed a superb card, frankly, even we were surprised by the sensation it became,” says Gordon Smith, CEO of consumer and community banking at Chase, in JPMorgan Chase’s 2016 annual report. “We exceeded our annual target of customers in less than two weeks.”
The shift toward practicality — and mass appeal — can also be seen in other issuers. The Platinum Card® from American Express, for example, recently added a $200 annual Uber benefit, while introducing other changes to its card.
“We have seen record growth in [the] number of new Platinum members in the U.S. over the course of last year,” said Janey Whiteside, senior vice president of global charge products, benefits and services at American Express, via email. “In fact, we have more Platinum Card Members today than ever in our 33-year history.”
Citi noted similar growth for the Citi Prestige® Card, which has an annual fee of $450.
“Since launch, the Citi Prestige portfolio has consistently exceeded our targets,” Jennifer Bombardier, a Citi spokeswoman, said in an email. “From 2014 to 2016, the portfolio grew 6X, with the number of millennial card members more than doubling.”
U.S. Bank has also thrown its hat into the premium credit card ring. It debuted the U.S. Bank Altitude Reserve Visa Infinite Card, which carries an annual fee of $400.
‘Because the card is cool’?
Aside from function, a contributing factor to the popularity of premium cards might also be their flash. Cards like the Chase Sapphire Reserve℠, The Platinum Card® from American Express and the U.S. Bank Altitude Reserve Visa Infinite Card are made of metal, rather than plastic.
“There’s something really magical about the metal card,” says Bob Daly, senior vice president of retail payment solutions at U.S. Bank. “The analogy I’ll make is to a well-made car. You know when you close the door on a well-made car, it just makes that solid ‘thunk’ sound? Not so tinny, like a less-well-made automobile? I think similar connotations could be made with the metal card.”
Lately, metal cards have been popping up everywhere. Luxury Card, whose credit cards are issued by Barclaycard, recently announced it had patented a gold-plated credit card. Multiple websites now advertise that they’ll transform your plastic cards into customized metal cards if you mail them in. Even credit cards with lower annual fees are getting in on the action.
Not everyone is a fan. “I think the dumbest thing in the premium card game is, ‘Give me a metal card,’” says Joe Brancatelli, a business travel writer and founder of JoeSentMe.com, a site for business travelers. “I’m not interested in impressing the lady at Walmart with how heavy my card is.”
Brancatelli’s go-to credit card for traveling — and the card he recommends to his readers — is The Platinum Card® from American Express. (His site is ad-free and relies on reader subscription fees.) But he cares about the card’s benefits, not the metal construction.
“Look at [premium cards] as you’d look at every other purchase,” Brancatelli says. “Why would you give American Express $550? Why would you give Chase $450? … If your answer is because the card is cool, then not only have the credit card companies beaten you, but so have the airlines.”
Is a premium card right for you?
If you’re drawn in by the siren song of a premium card’s large sign-up bonus, generous perks or metal construction but you travel only about once a year, go with another credit card. A cash-back card or a travel card with a lower annual fee might be a better call.
Premium cards also aren’t a good fit for people who are dealing with debt or have with subpar credit scores. If you plan on carrying a balance, look for a 0% APR credit card to dodge high interest charges. And if your credit score is so-so, look for cards marketed to people with fair or average credit.
But if you’re a frequent flyer who enjoys traveling in luxury, never carries debt and has a good or excellent credit score, a premium card might be a perfect fit for you.
Compare benefits and find a card that fits your traveling style. See if you’re pre-qualified for a higher sign-up bonus before applying. You might be surprised to find out how much issuers are willing to offer in return for space in a well-traveled wallet.