Are elite credit cards worth it?
By Tony Mecia | Updated: August 21, 2016
Never before have so many elite credit cards been available to the masses.
Major banks are rolling out more and more high-end cards, often with annual fees of $450 or more. And, despite the high price tag, these cards can often make sense for customers with excellent credit but who don’t employ live-in butlers or park Rolls-Royces in the garage.
That’s because the perks – which often include travel rebates, airport lounge access and huge caches of frequent flier miles – can be worth far more than even the heftiest annual fees.
The latest premium card to enter the mix is the Chase Sapphire Reserve unveiled Sunday. It comes with a $450 annual fee, 100,000 Chase Ultimate Rewards points after spending $4,000 in three months, as well as an annual $300 rebate on travel expenses and a one-time $100 credit for Global Entry, a U.S. Customers and Border Protection program that allows travelers to speed through airport security lines and customs. (See Chase Sapphire Reserve review.)
The 100,000 Chase points can be transferred to United Airlines’ frequent flier program (among others) and are the equivalent of four round-trip domestic plane tickets, two round-trip tickets to Hawaii or one-and-a-half round-trips to Europe.
(See chart: Compare elite credit cards)
Big-spending travelers targeted
Chase joins other big banks, including Citi and Barclays, which have added similar high-dollar cards in recent years in a market long dominated by American Express. The cards target high-spending people with excellent credit who travel frequently.
“American Express discovered these folks a long time ago, and now the larger banks are saying, ‘Why not us?’” says Ali Raza, principal at CCG Catalyst, a consulting firm that specializes in banking. “These cards come with very rich rewards, typically much higher than what Joe Schmoe is getting.”
As expensive as these cards are, they’re not even the most elite out there. Some even pricier ones – such as American Express’ fabled Centurion Card (reportedly with a $5,000 initiation fee and $2,500 annual fee) – are by invitation only, or are available only to private banking clients of major banks.
Of course, these cards in the $450 range aren’t for everybody. Surveys consistently show that most cardholders, even wealthy ones, prefer cash back to travel as a reward. People with average credit or who don’t spend much money might not qualify. Spending minimums could be hard to meet. Those accustomed to carrying monthly balances will find that interest charges will eat into any rewards.
They’re looking for a customer segment where people are looking for exclusive rewards. People might be willing to pay a higher annual fee if they are getting the right type of rewards that are matching what their lifestyle is.
|— Tiffany Montez
“They’re looking for a customer segment where people are looking for exclusive rewards,” says Tiffany Montez, senior analyst with banking consulting company Aite Group. “People might be willing to pay a higher annual fee if they are getting the right type of rewards that are matching what their lifestyle is.”
Montez says she doesn’t foresee an explosion of high-dollar cards, because the cards appeal to such a small segment of the population.
The increase in the number of elite cards available also comes as some issuers are cracking down on card applicants with a history of “churning” reward credit cards – applying for cards, milking them of the rewards, then closing them and repeating the process.
it make sense to pay more?
To be sure, most people don’t need a high-dollar card. There are plenty of tiers of cards:
- No-fee plain-vanilla without rewards.
- Cards that offer simple, straightforward rewards and no fee.
- Cards with annual fees in the $50 to $100 range.
Generally, the higher the fee, the greater the rewards.
Picking the right card
To determine if moving up to the next credit card level is a good idea, first determine whether an inexpensive rewards account will suffice.
Many banks issue cards with no annual fee that also come with excellent customer service, heightened insurance and warranty protection and a decent load of enticing travel and shopping rewards.
Still want or need the extras only associated with elite accounts? Review the fee-based credit cards on the market, analyze the perks of each and compare them to their annual costs. Choose right, and it is possible to come out ahead if you maximize the benefits.
For example, if you travel extensively and want to relax in members-only airport clubs, find out how much the airline's membership charge is. (It's usually around $400 per year, which is just about the price of the average elite credit card.)
Dan Nainan, a professional comedian and actor who is frequently on the go, says a card that gets him into Delta clubs is worth it to him, despite the high annual fee.
"My prime motivation is the airline club. It's luxurious. And if I had to pay, it would be the same price of the card, so why not?"
These premium products may have cachet, but their benefits are practical for many cardholders.
"Some people may get an elite card for status, but I actually use my card for normal business transactions, as well as for personal use, such as vacations and large purchases for my home," says Bob Venero, CEO of Future Tech Enterprise Inc. in Holbrook, New York, who received a Black Card from Barclays several years ago. “Using the elite card allows us to do more and work faster with a larger credit line."
Erica Sandberg contributed to this report.
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