Update: Do refundable Arrival reservations justify keeping Sapphire Preferred?

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Background

In the most recent of my periodic, blistering attacks on the Chase Sapphire Preferred, I explained why I consider the "travel" bonus category to be a red herring:

  • "The Barclaycard Arrival isn't superior in earnings to the Sapphire Preferred for travel purchases;
  • "It's superior to the Sapphire Preferred for travel purchases because that's how you can leverage its dominant 2.22% cash back earning rate on all non-bonused (manufactured) spend."

Developments

Then on Sunday, when I wrote my wrap-up post on Frequent Traveler University, I shared something mentioned in one of the sessions on manufactured spend (and which had previously been shared with me by a few readers privately):

"Speaking of which, Barclaycard allows Arrival redemptions against purchases that are later refunded (tread lightly here)."

In response to a reader question, I explained that neither airlines nor credit card companies like to see a repeated pattern of refunded purchases, but that doing so occasionally in order to maximize your rewards probably wouldn't pose a risk of account closure.

While I did (accidentally) do this once, the fact is that I actually do spend a lot of money on travel, and I'm happy to capture my 60-70% discount by putting manufactured spend on my Arrival card and redeeming Arrival miles against those real travel purchases.

Updated Analysis

The fact that you can redeem manufactured spend against manufactured transactions undermines the first proposition I laid out: that travel purchases have to be put on the Arrival in order to leverage its high earning rate. The most extreme case would be saving up your manufactured Arrival miles until the end of the year and buying a single, $15,000 refundable first class ticket.

That way you would be able to put all the travel reservations you intend to honor on a Chase Sapphire Preferred and earn 2 Ultimate Rewards points per dollar on those purchases.

However, even without that analysis, my first argument, regarding the annual fee, still stands:

"Consider how much you'll have to spend in order to recoup the Sapphire Preferred's $95 annual fee:

  • At 2.5 cents back per dollar, you'll need to spend $3,800 in travel categories in order to earn back the value of the annual fee.
  • But it'll take another $3,040 to recover the $76 in value you would have earned from putting the initial $3,800 in travel spend on a no-annual-fee 2% cash back card!
  • With the conservative valuation of 2.5 cents back per dollar spent in bonused travel categories, you'll need to spend $6,840 before you start showing a profit."

This is obviously an attainable sum for very, very many of my readers.

And if you prefer to take the Sapphire Preferred's 7% annual dividend into account, just $3,551 covers the annual fee and $2,655 covers the foregone 2% cash back on that amount.

Whether you're using $6,840 or $6,206 as your "true" break-even point, a business traveler might spend that amount in just two or three business trips, while even a leisure traveler who has to buy tickets and hotel rooms for a family could easily anticipate spending that amount in a year on bonused travel purchases.

Was I wrong?

Sorry, but I'm not about to go that far.

While the Sapphire Preferred's 50,000 Ultimate Rewards signup bonus is terrific, the possibility of asking for a product change from the Sapphire Preferred to a second, third, or fourth Freedom card means that by keeping the Sapphire Preferred for an additional, paid, year you're foregoing (using this year's bonus categories as an example) 15,000 Ultimate Rewards points at gas stations, 7,500 Ultimate Rewards points at restaurants, and 7,500 Ultimate Rewards points at Amazon.com.

All while paying $95 for the privilege.