Are Premium Credit Cards Always Better Than Regular Ones?

Capitalism has trained us to believe that expensive things are generally better than cheap things. In fact, such a belief system has helped the luxury industry to blossom, which reached approximately S$1.9 trillion in 2017. However, this principle of "expensive" equals "good" doesn't work very well for deeply personal products where the buyer's personal circumstances and preferences actually significantly impact the value of the product. Credit cards are just one of those things where the most expensive option isn't always the best. Here, we explore some of the premium credit cards in Singapore and evaluate when they are better and worse than the average credit cards in the country.

Premium Cards Charge Extremely High Annual Fees

Many banks in Singapore offer a high-end car that's reserved for wealthy consumers. Naturally, these cards charge annual fees that are 100% to 200% higher than the fees charged by other "normal" credit cards. For example, Standard Chartered Visa Infinite Cards, HSBC Visa Infinite Cards and Citi Prestige Cards charge an annual fee of S$500 to S$600, while other credit cards for miles charge S$200 or less. Given that an average family in singapore spends about S$4,000 to S$5,000 per month, this is a rather large difference representing almost 10% of an average household's budget just for a credit card's annual fee.

Premium Cards Don't Necessarily Provide Much More Rewards

However, premium cards' benefits aren't always large enough for everyone to justify the 100-200% increase in annual fee. In fact, most premium cards only provide 20-40% more mile rewards than normal credit cards. For instance, Citi Prestige Card provides 1.3 miles per S$1 spent in Singapore, only 8.3% higher than Citi PremierMiles Visa Card's 1.2 miles per S$1 reward.

For an average consumer, such a meager increase in mile rewards will not be able to offset the increase in annual fee to justify applying for premium cards. For example, one could earn about 28,800 miles by using Citi PMV Card to spend S$2,000 per month for 1 year, while paying S$192.6 in annual fee. Assuming a mile is worth about S$0.01, he would net about S$95.4 in value by using the card. In contrast, he would earn 33,600 miles with Standard Chartered Visa Infinite Card while paying S$1,070 in annual fee, which would actually net him negative S$200 in value over 12 months.

Then Who Should Get Premium Cards?

If premium cards aren't actually better than normal credit cards, then why do they exist? It's because they actually are better for a specific segment of the population: wealthy consumers who travel frequently. By revisiting our math from above, we can calculate how a wealthy consumer spending S$5,000 per month could benefit from the same two credit cards. Since a mile is worth more than S$0.04 when redeemed for business class, we can easily see that Standard Chartered Visa Infinite Card actually yield better value for a high spender who enjoys business class air tickets than Citi PremierMiles Visa Card.

Not only that, premium credit cards tend to come with a variety of travel benefits that can be extremely valuable to frequent travellers, though their value is difficult to quantify in actual dollars. For example, they often provide complimentary access to airport lounges (4-6 times a year or unlimited), travel insurance coverage, airport limousine transfers, complimentary golf green fees and special hotel benefits like free room nights and gold status. While not everyone can fully maximise the value of these benefits, those who do could potentially "earn" hundreds if not thousands dollars worth of discounts and perks by fully utilising these features.

Rule of Thumb in Choosing Premium vs Regular Credit Cards

Given our findings above, we can distill couple rules of thumbs to follow when choosing between getting a premium credit card and a regular miles card.

First, you should be making at least S$120,000 per year and spending at least S$5,000 per month to get a premium card, especially since most of these products impose a minimum annual income requirement of S$120,000. Otherwise, the amount of rewards you earn from you card won't be sufficient to compensate for the high annual fee.

Secondly, you should be travelling more than 2 times a year to fully benefit from a premium credit card. If not, many regular miles credit cards also provide sufficient level of travel benefits like mile rewards and 2-4 complimentary lounge visits annually. Also, people who travel less than 2 times a year would actually be better off going with a cash back credit card since they tend to yield higher level of rewards than any miles credit cards.