When Freedom met Sallie…

The arrangement number 1 is considered the most lucrative for those, who collect miles and points. And I would have to agree. It’s a powerful combination because you can take advantage of Freedom’s rotating 5 percent categories and transfer the points to Ultimate rewards, which are more valuable. In turn, you can convert those points to miles  in several airline programs on 1:1 basis.

Non-bonus spending through Freedom earns 1 percent cash back. Chase Sapphire Preferred earns 1 Ultimate rewards point per dollar, 2 points on dining and travel. It comes with a 95 dollar annual fee. You hear very often, how it’s worth every penny and then some.

Let’s find out whether it’s worth it for a middle class family, shall we? First, we’ll ignore travel earning and assume we will use points for that. So let’s take an average middle class family like mine, and break down annual expenses by category.

1) Groceries: 500 a month, or 6000 per year.

2) Gas: 300 a month, or 3600 per year.

3) Dining: 400 a month, or 4800 per year

4) Amazon : 100 a month, or 1200 per year

5) Drug stores: 100 a month, or 1200 per year

6) Everything else: 600 a month, or 7200 per year.

Grand total is 24000 dollars, which is close to what an average family spends per year. That’s about what we put on credit cards annually.

Team Sapphire :

Now let’s calculate how much we can earn in rewards using combination number 1. We will use Freedom for bonus categories and Sapphire Preferred for everything else. Look at Freedom’s rotating bonus categories table at the bottom of the page for reference.

1) Groceries: it’s not a bonus category anywhere. So we would get 6000 in Ultimate Rewards per year.

2) Gas: bonus category in 2 quarters. We would have 9000 Ultimate Rewards from that. Add 1800 points from the other 2 quarters. I realize, you can buy gift cards for the rest of the year. But my husband does not like to be tied down to a particular station. So let’s ignore that assumption. Total 10800 points.

3) Restaurants: bonus category in  one quarter, so would net 6000 points from Chase Freedom. Plus about 7200 points from Chase Sapphire Preferred during the rest of the year, since it earns 2 points on dining. Total 13200 points.

4) Amazon: gift cards can be bought at Lowe’s, CVS and some gas stations, which are Freedom’s bonus categories in all four quarters. You can buy them as you need them. So let’s say 6000 points per year.

5) Drug stores: bonus category in one quarter. Let’s ignore the fact that you can stock up ahead with gift cards. Most families will not go through the trouble. So 1500 points plus 900 from the rest of the year. 2400 points total.

6) Everything else: 7200 points per year for simplicity. I realize, some expenses may fall under Kohl’s when it’s a bonus category and so forth. But unless you are Frequent Miler, you won’t spend huge amounts there.

Grand total for the year: 45600 Ultimate rewards.  Chase Sapphire Preferred gets a 7 percent dividend on all earned points. I have to add the percentage to the amount, I would  put on it for non-bonus  spending. So, that would be 1617 points, 7 percent dividend, according to my calculations. 45600+1617=47217 Ultimate rewards.  

Team Sallie :

This is a second combination of Chase Freedom and Sallie Mae Barclaycard. We don’t get points but cash back in this case. Sallie Mae earns 5 percent cash back on groceries and gas on up to 250 each per month, 1 percent everywhere else.

1) Groceries: 150 dollars from 5 percent bonus spending, 30 dollars from the rest. Total 180 dollars.

2) Sallie Mae earns 5 percent back on gas on up to 250 per month. That, paired up with Freedom would mean 180 dollars in cash back , since you would be covered for the whole year on 3600 dollar gas spending.

3) Dining: 60 dollars from the Freedom’s bonus quarter, 36 dollars from the rest of the year. Total 96 dollars.

4) Amazon: we can get 5 percent back using Freedom or Sallie Mae. So, 60 dollars total.

5) Drug Stores: same principle. 24 dollars.

6) Everything else: same as combination number 1. To keep it simple, let’s say 72 dollars per year, or 1 percent cash back.

Grand total: 612 dollars.

So, we have 47217 Ultimate rewards points from option number 1 vs. 612 dollars from option number 2. Also CSP annual fee is 95 dollars , while cards from second option have no fee.  So if we add  the difference to the cash back option, it would be 47217 Ultimate rewards vs. 707 dollars.

So which one should you pick? Well, if you go with the option number 1, you are paying 1.497 or  lets say 1.5 cents for  Ultimate rewards point: 707  divided by  47217.  You could transfer those points to United miles or Avios. But if you have a family like mine, it would be very hard to redeem miles  in economy and beat 1.5 CPM (cents per mile). That’s actually my average redemption.

Also, keep in mind, very often Chase Freedom has special redemption on gift cards at 10 and 20 percent off . If you are willing to buy those cards at face value for graduation  or wedding gift, you have to consider that as well. And Chase currently does not run any bonuses on  transfers to points or miles. By that logic  your cost for Ultimate rewards point would be even higher.

You would get a discount by transferring to Rapid Rewards points in Southwest. That’s because you can get around 1.9 cents in flight value per point on certain fares.  But then you are tied to just one airline with their pricing and schedule.  And they could devalue their award program. Incidentally, Southwest has just announced that after March 31st 2014, 1 Rapid Rewards point will only get 1.43 cents in value. This change was not yet in place at the time I wrote it. As I mentioned in my previous post, currently we fly free with all  the miles and points, we have accumulated through sign-up bonuses. That is what middle class family should focus on, IMO.

There is no question, that for  a frequent single traveler or those, who value premium redemptions, it might be worth it to pay 1.5 cents for Ultimate rewards point. But  for most families with limited savings it’s best to have cash through regular spending, just in case. I value Ultimate Rewards point at 1.25 cents each, which is what I would pay for it.  So, I think Sallie should marry Freedom and they should live happily ever after.  Or at least till the banks decide to axe either one of them.

However, some  families may benefit from collecting Ultimate Rewards or other flexible points. Read my post on it HERE

Photo credit goes to list25.com

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