Insurance: All You Can Know About Premium Credit Cards

Shelling out so much money to get cash back seems counter intuitive. But according to a recent New York Times article, these high-fee credit cards—often made of flashy metal rather than plebeian plastic—are selling like Popsicles in July.

The cards promise perks like access to airport lounges and hotel credit as well as cash-back rewards for the money you spend, but we wanted to know whether they’re worth their premium price. To find out, we tested three of them using our Credit Card Adviser Comparison Tool.

We concluded that those metallic cards would burn a hole in most consumers’ pocketbook. But if you’re enough of a jet-setter to take advantage of their noncash perks, they might be worth a look–with some important caveats.

See our airlines and luggage ratings and buying guides. 


Dollar Benefits vs. Dollar Costs

To compare cash-back credit cards, you have to look at dollar costs vs. dollar benefits. That’s what our Credit Card Adviser does with 55 popular cash-back cards to help you find the most remunerative one for your spending patterns. It totes up the cash-back rewards based on how much you tend to spend each month on gas, groceries, restaurants, travel, and everything else. It also takes into account annual fees that may or not may be waived in the first year, and any special bonuses designed to entice you to apply for the card.



For this analysis, we focused on three cards that cost big bucks: the Citi Prestige, which has a $450 annual fee, the MasterCard Black from Barclays Bank, $495, and its MasterCard Gold, with a heavyweight $995 annual fee.

Although these cards are tailored for frequent flyers, we first wanted to see how they would perform for typical consumers. So we assumed $1,676 per month in charges for travel, restaurants, gas, groceries, and all the other things you might reasonably pay for with a rewards card. That was based on the average expenditures of American households as determined by data from the Bureau of Labor Statistics.

 

The results? All three cards sank to the bottom of our rankings like anchors. Instead of cash back, they produced a net cash cost of $160 to $1,778 over the first three years you would have the cards. (We assess the first three years to get past any introductory annual fee waivers and bonuses, thereby providing a truer cost-benefit picture. We also assume that the card’s balance is paid off in full each month to avoid finance charges that can easily eat up any cash-back gains.)

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By contrast, the top-performing cards in our tool’s comparison of 55 produced a net cash back of $1,207 to $1,340. For the typical consumer, the choice is a no-brainer.

But because these cards are designed for globe-trotters, we also calculated for way-above-average travel spending. We arbitrarily cranked up the monthly spending on travel, restaurants, and gas by five times, which added up to $31,440 per year in those categories.

Same difference. The three high-fee cards were still at the bottom in cash back after three years. Citi Prestige, however, produced a net cash back of $994 and MasterCard Black a net cash back of $552. MasterCard Gold was still in the red with a net cost of $269.

But that still put the expensive cards way behind the others. The top-rated ones returned $2,716 to $3,025 in cash back over three years. So the choice is clear: On a pure dollar cost-benefit basis, most consumers should avoid high-fee cash-back cards, our comparison shows

 

So why might folks who travel a lot sign up for a high-fee rewards card? The major draws are introductory offers, travel credits, and other noncash perks whose value can be difficult to measure. “These cards can certainly be worth it, but you have to take a careful look,” says Gary Leff, a travel blogger at viewfromthewing.com.

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Leff cites the 100,000-point sign-up bonus for the new Chase Sapphire Reserve card, which has received huge buzz in its first month on the market and isn’t yet in our Credit Card Adviser database. “The minimum value of that is $1,500” when redeemed for travel through Chase Ultimate Rewards, Leff says.

To get that, you have to spend $4,000 using the card during the first three months you have it. Our average consumer would hit that target. But she’ll give most of that $1,500 in value back over three years because of the card’s $450 annual fee.

Citi Prestige offers only 40,000 points after you spend $4,000 on the card in the first three months, and the two MasterCards we compared offer none.

Travel credits are another goody. They range from $100 to $250 per year on the cards we compared and can be used to pay for things like airfare or hotel upgrades. That can offset the annual fee each year. “Problem is, if you don’t use it, you lose it,” says Michael Saccucci, director of statistics at Consumer Reports.

Then there is access to the luxury of airport lounges. Citi Prestige opens the door to more than 900 Priority Pass Select lounges worldwide, and the two Barclays Bank MasterCards give access to 350 Lounge Club locations around the globe.

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Prospective high-fee cardholders should assess how much they need or will get from this perk. “The main benefit of a lounge is the quality of the food and alcohol that you get there,” says Jeff Harris, a master frequent flyer who logs 200,000 miles per year as an international dealer of vintage and modern high-end watches.

Leff says that the lounge networks used by the high-priced cards we compared don’t have lounges in all of the airport and terminals you may be flying through. And they tend not to include the lounges of the major U.S. carriers, such as American’s Admirals Club and Delta’s Sky Club. The Priority Pass Select directory, however, does list five Alaska Airlines Board Room lounges.

And last, these cards also offer a number of other benefits, including payment of fees for the TSA Pre and U.S. Customs and Border Protection Global Entry airport security speed-up programs; travel insurance; purchase protection coverage; identity protection services; and luxury magazine subscriptions.

The bottom line: Before signing up for one of these cards, consumers who travel a lot should first carefully add up the dollar costs and benefits over the first three years to see whether they will realistically come out ahead. Then they should try to assign a personal value to the harder-to-price noncash perks to determine whether they’re worth the cost.


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