A week ago, Chase knocked my socks off with the news that they were revamping their Freedom cards. The Freedom Visa card (with its 5% rotating categories) will be replaced with the new Freedom Flex Mastercard. And, both the new Freedom Flex and the existing Freedom Unlimited cards will gain the ability to earn 3X points for dining and drugstore purchases, and 5X points for travel booked through Chase.
Both Freedom cards are fee-free. And, in both cases, even though Chase advertises them as cash back cards, they really earn Ultimate Rewards points. As such, it’s possible to move those points to a premium Ultimate Rewards card such as the Sapphire Preferred, Sapphire Reserve, or Ink Business Preferred in order to get more value from those points. For example, you can now earn 3X to 5X points per dollar with either Freedom card for drugstores, dining, and travel booked through Chase and then move those points to another card in order to transfer points to airline or hotel programs or to pay for travel with points at a rate of either 1.25 cents per point with the Sapphire Preferred or Ink Preferred or 1.5 cents per point with the Sapphire Reserve. You can alternatively then use Chase’s Pay Yourself Back feature to get up to 1.5 cents per point value when erasing statement charges. The latter means that the Freedom cards’ 3X and 5X categories are worth up to 4.5% and 7.5% back. That’s huge.
Sad little Sapphire Preferred
Those of us in the know realize that the changes to the Freedom cards make the premium Ultimate Rewards cards more valuable because you need one in your household in order to get more value from the points earned on your Freedom card. But keep in mind what I said before: Chase advertises the Freedom cards as cash back cards. As a result, most consumers don’t know that the Sapphire cards can unlock more value from the Freedom cards’ rewards. Most consumers, I think, will see the Freedom cards as much better options than the Sapphire Preferred…
The Sapphire Preferred card, which costs $95 per year, earns 2X for travel and dining (and 5X for Lyft). When the card was introduced approximately 10 years ago, that was awesome. Today, it looks pathetic, especially in light of the Freedom card revamp. Instead of the Sapphire Preferred card’s 2X travel and dining, you can now get a fee-free Freedom card that earns 5X travel (booked through Chase) and 3X dining. The addition of 3X drugstore; and 5X rotating categories (Freedom Flex) or 1.5X everywhere (Freedom Unlimited) is gravy. Even if you consider that the Sapphire Preferred’s points are worth 25% more towards travel, that brings the Preferred card’s earning rate to only 2.5% from travel and dining.
The Sapphire Preferred card has real value above the superficial comparison in earning rates detailed above. For example, not only are points worth more (and are transferable to airline and hotels, unlike with Freedom cards), but the Sapphire Preferred has no foreign transaction fees and much better travel protections that the Freedom cards (including primary car rental insurance, for example). These are not headline grabbing benefits though. I expect that most consumers will look at the annual fee and the earning rate and will give the card a hard pass.
Chase isn’t stupid. I have no doubt that their Sapphire team is fully aware of the Sapphire Preferred card’s weakened marketing position. They have to do something. What should they do?
Greg’s Sapphire Preferred Recommendation
I’d like the Sapphire Preferred to move to 3X dining, 3X grocery, 3X gas, and 3X travel (5X for travel booked through Chase). 3X dining is a necessary minimum to make the card competitive with Chase’s own Freedom product. Same with 5X travel booked through Chase. The 3X grocery, gas, and travel categories are recommended to make Chase competitive with the $95 Citi Premier card which earns 3X for grocery, gas, dining, and select travel (flights, hotels, travel agencies).
Not long ago, recommending 3X earnings for dining, grocery, gas, and travel would have been unthinkable for a $95 per year card. Citi, though, showed that it could be done. And Chase itself made it necessary by overshadowing the Preferred card with their own Freedom cards.
Sapphire Reserve Looking Tired
Chase’s Sapphire Reserve card debuted only 4 years ago and it then made a huge splash with 3X travel and dining, and 1.5 cent per point value. Since then, US Bank matched Chase with 3X earnings and 1.5 cent per point redemptions on their Altitude Reserve card. And Amex fought back with their Gold Card which earns 4X dining (worldwide), 4X grocery (US-only on up to $25K in purchases per year, then 1x), and 3X for flights booked directly with airlines or through Amex Travel.
While the Sapphire Reserve card’s point redemption value is still competitive and the card’s travel protections are still best-in-class (see this post for details), the earning rate is no longer good enough. Cards that cost far less now offer much better transferable point earnings.
Of course, if the Sapphire Preferred card’s earning rates are increased (as I believe they must be to remain competitive), the Sapphire Reserve will have to outdo the Sapphire Preferred to continue to command such a huge premium (the Sapphire Reserve currently costs $550 per year with $360 per year in rebates).
Greg’s Sapphire Reserve Recommendation
Since the Sapphire Reserve card was introduced, I’ve liked the fact that it was better than the Sapphire Preferred in every way (except the annual fee). It makes sense to consumers: you can pick the $95 travel card with 2X travel and dining and 1.25 cents per point rewards or the much more expensive travel card with 3x travel and dining and 1.5 cents per point rewards (along with some other perks like Priority Pass). I’d like to see the Sapphire Reserve continue that tradition. The Sapphire Reserve should continue to best the Sapphire Preferred in every way.
Given that I recommended that the Sapphire Preferred move to 3X earnings on a number of categories, the obvious direction for the Sapphire Reserve is to move to 4X earnings on those same categories. I’d like the Sapphire Reserve to move to 4X dining, 4X grocery, 4X gas, and 4X travel (5X for travel booked through Chase). 4X dining and grocery simply matches the less expensive Amex Gold card while 4X gas and 4X travel becomes industry leading. I think they could get away with 3X gas and 3X travel (as long as they keep the 5X travel booked through Chase idea), but that would be a minimum requirement to stay competitive.
Chase’s Sapphire lineup is no longer competitive. First, the pressure came from others (especially Amex and Citi), but now it also comes from within thanks to adding 3X categories to their Freedom cards. In response, I recommend that Chase make the following changes:
- Sapphire Preferred:
- Current: 2X dining and travel
- New: 3X dining, 3X grocery, 3X gas, and 3X travel (5X for travel booked through Chase)
- Sapphire Reserve:
- Current: 3X dining and travel
- New: 4X dining, 4X grocery, 4X gas, and 4X travel (5X for travel booked through Chase)
A few years ago, I would have felt silly making the above recommendations. It would have seemed far too generous. Now, though, these recommendations strike me as just enough to make the two cards competitive and once again newsworthy.
What do you think? If Chase made these recommended changes would you be excited about their Sapphire lineup? Are there other changes Chase ought to make?