AmEx Offers: Spend $5,000+ or more, get $50 back, up to 3 times

I would challenge you to look at the annual fee differently. You are falling for the sunk cost fallacy: https://en.m.wikipedia.org/wiki/Sunk_cost

The annual fee of a card should be considered when you initially get the card, and once a year before the annual fee is due. That's when you decide if the annual fee is worth it, based on all the benefits the card has, and whether those benefits are worth it to you.

That's an individual decision - I like the extended warranty when I buy appliances (it has saved me before), and the AMEX deals. I also like the 6% cash back on groceries. Is all of that worth $95? For me, it is - I get about $50/yearish on AMEX deals for stuff I already buy.

Outside those timeframes, the annual fee is a sunk cost to be ignored for decision making purposes.

For example, last quarter, my Chase freedom gave 5% on groceries with no annual fee.

My blue cash gave 6% with an annual fee that had already been paid.

Which card to use is obvious. Using the Chase card gives less cash back. I've paid the AMEX annual fee and won't get it back.

Also, the analysis is a bit disingenuous for two reasons.
- First, you assign the full $95 to the 6% cash back. If that's the only benefit you get, your analysis is right, but if you use other benefits, consider their value as well.
- Second, if you call them once a year, they'll give you a retention promotion. I recently called and got $50, so now it's a $45 annual fee, which is pretty normal. My AMEX deals more than pay for that.

(Actually, I did use the chase card for groceries, because if I didn't, I'd exceed my $6k grocery spend this year. But the point still stands - that decision was made independent of the annual fee.)

I have the Blue Cash everyday, which does not have an annual fee but gets 3% cash back on online purchases. According to your logic, I should call it more than 3% becuase of all the benefits I use including Amex Offers. That is ridiculous. You can convince yourself whatever you want, but you aren't getting 6% back. But Kudos to Amex marketing, there are a lot of other people like you that they obviously convince that they are getiing 6% back. Clearly slick marketing and America's terrible math skills works.

No, that is not what I am saying at all. Your arithmetic is right, but the logic of how you are using it is flawed. You are putting two separate decisions in the same math formula, where they don't belong.

Here's the analysis in two simple questions:
Q: You have two cards in your wallet. One pays 5%cb with no annual fee. The other pays 6%cb with a huge annual fee that you already paid. Which card should you use?
A: The 6% cash back card, you get 1% more. That's a no-brainer. The annual fee doesn't matter for this decision because you already paid it. You won't get the annual fee back.

Q: The annual fee for your 6%cb card is coming due next month. Do you keep it and pay the annual fee, or do you cancel/downgrade it?
A: That is like any other purchase decision. You look at the card benefits and decide if they are worth the annual fee to you, look at competitors to see if you can get those benefits for less. You may also negotiate a better deal. You might do your 4.4% math now to help make that decision, and/or look at other card benefits.

By your logic, nobody in their right mind would have a supercard with a $300-$700 annual fee. But, people do, and they aren't wrong. Those cards may not give great cash back, but have other benefits, when combined, are worth it to them. They want the TSA stuff, travel bennies, premium concierge service, no foreign currency fee, better AMEX deals, airport access, rental car insurance etc.... Not a card for me, but I don't judge them for having it.

No, I am not looking at it wrong at all. The percent thast a card gives you is the amount of money you have more than when you started. On the Amex Blue Everyday, if you spend the full $6,000 a year on groceries at 3%, you earn $180 back which is 3%. On the Preferrred, if you spend the full $6,000, you earn $360 back and spend $95, making you a total of $265 which is 4.4%.

In any business or accounting, proft is measured by taking the amount you make and subtracting your expenses. It doesn't make sense to say just becuase I already paid it, it doesn't count.

I also have cards that have annnual fees, if there is a specific benefit that cancels out the annual fee that you will use (for example, the $50 hotel credit with the Sapphire Preferred) then youm can offset that with the annual fee. But the Amex Blue preferred doesn't have that except for Amex offers which you would get those same offers with the free card.

No different than calculating the cost per mile of a car, you always include the cost of the car even if you already paid for the car.

There is a whole thread on reddit where they discuss how this a 4.4% card, and there is a great video on youtube where they talk about this and say exactly what I said,,,that the Amex preferred is a 4.4% card and NOT a 6% card.

https://www.youtube.com/watch?v=KghLDOBLxpc

Businesses do the exact same thing, they ignore sunk costs. If a cost is paid and you can't get it back, it is not relevant to decision making. It's one of the first things you learn in business school. The loss is still on financial reports, yes, but it doesn't affect decision-making.

Here's a good article on it from Harvard business school online: online: https://online.hbs.edu/blog/post/...-processes [hbs.edu]

If the loss is on the financial reports, then it does affect decision making. If someone was going to decide whwther to invest in that company, would they say just ignore the million dollars loss becuase it was a sunk cost?

You clearly don't get it.

Before you pay the annual fee, you may project it is 4.4% based on assumptions you make (that you will spend exactly $6k on groceries, and get no other benefits)

However, once you pay the annual fee, it is a 6% card, at least until the next annual fee.

Would you use a 5% card instead of the AMEX because it's a 4.4% card? No, because you won't get the $95 back. Today, in your wallet, it's a 6% card. You will get $60 back on $1000 in groceries instead of $50.

Would you downgrade the AMEX card next year because you got the AAA Signature card that gives 5% on groceries with no annual fee? Probably.

Businesses do the same (this is very basic business school stuff).

- Let's say Ford plans to build a $1B plant in Mexico, becuase they project to make them $2B, a $1B profit.
- It's partially built. They've spent $750M and have $250M left to spend to bring it online.
- Tariffs and other political risks show up, and now that plant is projected to only make $500M instead of $2B.

Should Ford:
A) Abandon the project because building a $1B plant to make $500M makes no sense? Their total loss would be $750M, what they already spent.
B) Continue to build because they can invest $250M more to make $500M? Then, the total loss is $500M. Still sucks, but better!

Investors won't be happy with either, but they'll be less happy with option A.

That is the sunk cost principle.

Business decisions are not made based on their own financial reports - that's past information. They are based on projections for the future.

Now, an outside investor may use that crappy financial report to decide they don't want to invest. That's because the investor doesn't have a sunk cost - they haven't invested yet. To them, it's basis for a projection of what will happen in the future.

It also works for personal decisions. If you spend $10 on a movie ticket, discover you hate the movie 5 minutes in, and stay because you don't want to have wasted the $10? No, you walk out and do something else you will enjoy. No reason to stay in a movie you hate.

As I said, hopefully Amex will come out with a 95% cash back card on the first $10,000 with a $9,600 annual fee just for people like you who will go around touting their 95% cash back card.