Should you pay the annual fee on the American Express Starwoods card?

Introduction

My wife’s AMEX SPG card is going into its 3rd year now (she got a credit for the 2nd year annual fee,) and I’m assuming she won’t get the $95 credit again this year, so I’m trying to decide if we should keep it or not.  First off, we actually don’t need it since she got the Biz one a couple of months ago.  The only benefit of keeping the personal one would be for the AMEX Offers.

Initially, I thought, “Well, I’ve used enough AMEX Offers that it’ll easily cover the $95 annual fee.”  Now while that’s true, the counterargument to that would be, “Well, you could have gotten the same AMEX Offers on a different AMEX card.”  And that’s very much true.  I could easily just cancel this personal SPG card and get a no annual fee card instead in its place.  Since AMEX allows you only 4 credit cards, let’s look at other possible credit cards that she can apply for instead.  The best candidate would be the Simly Cash business card since it has no annual fee and even a $300 credit on signup.  She already has one, but let’s assume that she doesn’t and gets that card to replace her SPG card.

1% Cash vs 1 SPG point

Let’s also assume she’ll only use it for non-bonused spend (like what she does now on her SPG card).  Therefore, instead of earning 1 SPG point per dollar spent like she used to, she’s now earning 1% cash instead.  To figure out how much spend she would need to put on the SPG card to cover the $95 annual fee difference, we’ll need to value what an SPG point is worth (let’s rule out the $300 signon bonus as well.)  I think everyone can agree that at a minimum, an SPG point is worth 2 cents, so let’s use that as a baseline.  Thus the formula to solve this is:  .02x – .01x = $95.  After some basic algebra, this means that she would need to spend $9,500 on the SPG card to cover the $95 annual fee difference over the 1% Simply Cash card.  If you value an SPG point at say 3 cents, then that amount is lowered to $4,750.  Sounds like a no-brainer right?  I could easily spend $9,500 more on my SPG card…

Opportunity Cost over a 3% cash back card

For the longest time, I used to put non-bonused spend on the SPG card since you know, everyone values it the highest.  However, one day, @dcatast told me, “That’s great and all Vinh, but when have you ever gotten more than 3c of value on an SPG redemption?”   ZING!  While it’s true you can achieve >3c of redemption value on a lower category stay, most of my stays are usually in cat 4 and up hotels, which is usually valued at around 2c.  That meant, I’m better of using a 3% cash card and then paying cash for the SPG stay.  And that’s when my non-bonused spend shifted to the 3% cash back card over the SPG card.  These days, the ONLY charges on my SPG card are when I take advantage of AMEX offers, and here are my AMEX offers charges over the past year.

The total comes out to be around $2,000.  That’s far short of $9,500 or $4,750.  I know people still like to psychologically gain and use points, but you need to get over it.  Math has proven otherwise.  I know this was a very long winded post, and I’m sure some of you thought, “Yeah, of course cancel it and get a no annual fee AMEX instead if all you’re doing is putting AMEX offer charges on it.”  

I wanted to leave that paragraph above because I had forgotten about the authorized users!!!  If you have 3 authorized users on your SPG card, you could have easily spent $7,000 on your SPG card in the last 12 months.  That means that if you value an SPG point at 2.3cents, then it actually does make sense to pay for the SPG card.  Now I realize we may not see the same number of offers for the next 12 months, but seeing as how Visa checkout seems to be stepping up their promotions lately, it wouldn’t surprise me if AMEX has to maintain or at least increase their offers in the next 12 months.

Conclusion

If you have 3 authorized users on your SPG card and you value an SPG point at 2.3c (both realistic scenarios,) then it does make sense to keep the SPG card.  If you have fewer AU’s than that or don’t value SPG as highly, then you should cancel and switch to a no annual fee card instead.