If you’re in the market for a new credit card and sign-up rewards, this may be the time to strike.
Jamie Dimon, chief executive officer of J.P. Morgan Chase & Co. JPM, +0.43% , said this week the company’s popular Chase Sapphire Reserve credit card reduced the bank’s profit by $ 200 million in the fourth quarter, to $ 300 million, according to Bloomberg. The bank won’t break even on the Chase Sapphire Reserve card for another five and a half years, it reported, citing an analysis from Sanford C. Bernstein & Co., a portfolio management and investment research company. (A spokeswoman for Chase declined to comment on the accuracy of that analysis.)
The Sapphire Reserve card comes with many perks including a $ 300 annual travel credit and a 100,000-point bonus when consumers spend $ 4,000 in the first three months of opening the card, and costs an annual fee of $ 450. A spokeswoman for Chase said the bank approved tens of thousands of applications in the first two days it was available, in August — so many in fact that Chase ran out of the metal cards and had to give new recipients a temporary plastic version.
Chase values the 100,000-point bonus at $ 1,500, but the rewards-program website The Points Guy said they could amount to more than $ 2,000, if consumers use them in partnership with Chase’s transfer partners, such as British Airways.
With the Sapphire Reserve card, Chase was specifically going after customers who in the past may have signed up for American Express cards, such as the Platinum card, said Andrew Davidson, a senior vice president and chief insights officer at research firm Mintel’s Comperemedia division, which focuses on marketing strategy. (In fact, Gordon Smith, the head of consumer and community banking at Chase, previously worked for 25 years at American Express AXP, -0.19% )
The buzz around that card created increased competition among card companies for big spenders, as companies will continue to roll offers out in the coming months, Davidson said.
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But while some credit-card companies and banks are tempting high-earning customers with lucrative rewards on credit cards with high annual fees, rewards may be drying up for the average consumer. Although from early 2015 through the first several quarters of 2016, cash sign-up rewards were climbing, they then fell to $ 138 in the third quarter of 2016, down from $ 150 in the third quarter of 2015, according to an analysis by Mintel. (The firm analyzed the sign-up bonuses of credit cards sent to consumers by mail.)
“We’re seeing unprecedented levels of rewards, whether it’s in points or cash back,” Matt Schulz, a senior industry analyst at CreditCards.com, previously told MarketWatch. “Whenever things are at unprecedented levels, they don’t tend to last forever.”
Something similar happened with cash-back rewards in 2011, Davidson said. At that time, credit-card companies were offering new cards with increasingly generous rewards, pushing the average cash incentive for signing up to $ 197. The companies subsequently couldn’t keep up, and the average came back down to $ 100.
What’s more, with the Federal Reserve expected to raise interest rates in the near future, credit-card companies and banks will be charged more to borrow and may pass that cost onto consumers, Schulz said.
With interest cutting into banks’ and credit card companies’ profits, that may be another reason they are no longer able to give such lucrative rewards, Davidson said. “If the bank is paying more to borrow, they’re probably going to make you pay more to borrow as well,” Schulz said.