Always Downgrade American Express Cards: Prorated Refund

Churners, or “gamers” as American Express calls them, are known to frequently cancel cards they see no merit of paying annual fee for. American express issues a lot of cards with annual fee and is it is expected that not all of them appeal to all churners.

A Word of Warning

Because of Once in a Lifetime Rule (see Anti-Churning Rules), I strongly urge you to not to downgrade to a card that you may not have had the signup bonus for. A notable exception to this is the American Express Green charge card which has a poor signup bonus.

Also, I must mention that The Reward Abuse Team (often called RAT) at American Express likely condemns the act of getting a signup bonus on a card and downgrading right away to altogether avoid the annual fee. Additionally, The following statement is often found in terms and condition of American Express cards.

If we in our sole discretion determine that you have engaged in abuse, misuse, or gaming in connection with the welcome bonus offer in any way or that you intend to do so (for example, if you applied for one or more cards to obtain a welcome bonus offer (s) that we did not intend for you; if you cancel or downgrade your account within 12 months after acquiring it; or if you cancel or return purchases you made to meet the Threshold Amount), we may not credit Hilton Honors Bonus Points to your account.

I have highlighted the relevant bit to this article. I do not think it is enforced but that may have partially to do with the fact that a lot of non-churners do cancel or downgrade within 12 months, many churners do not cancel or downgrade within 12 months, and the simply fact that not a whole lot of people abuse this.

Prorated Refund of Annual Fee and American Express

American Express used to provide prorated refund upon cancellation of a card but they have stopped doing so since September 2016. However, American Express still provides prorated refund upon downgrade. If you downgrade a card, say A, to another card, say B, with an annual fee then you will receive prorated refund for A but will also be charged a prorated annual fee for B.

Example 1

Some American Express cards can be downgraded to a no annual fee card. The most notably example is the American Express Everyday Preferred (EDP) credit card with an annual fee of $95 with its no annual fee counterpart simply called American Express Everyday (ED) credit card. If you have an EDP card that you do not wish to renew then it may be wise to simply downgrade it to the ED card and get some juicy prorated refund.

In the screenshot shown above, after 2 months of holding a card with an annual fee of $95, it is downgraded to a card without no annual fee. Thus annual fee for 12-2 = 10 month was refunded i.e. 95/12 * 10 = $79.16.

Example 2

Some American Express credit cards can be downgraded to cards with lower annual fee that you may actually want to keep. A personal example of mine is my recent downgrade of Delta Platinum to Delta Gold. I could have cancelled my Delta Platinum card right away, instead I chose to downgrade it to a card that I wanted and got some of prorated refund in the process.

In the screenshot displayed above, after 3 months of holding a card with an annual fee of $195, it was downgraded to a card with $95 annual fee. First, annual fee for 12-3 = 9 months was refunded i.e. 195/12*9 = $146.25, then a new annual fee was applied for 9 months, i.e. 95/12 * 9 = $71.25. Overall, I ended up with the card that I wanted and instead of paying $195 for a full year, I only ended up paying 195-146.25+71.20= $120 which is $75 less than what I had already paid.

Example 3

Some American Express credit cards may be downgradable to cards with lower annual fee but you may not see any value in the latter card. As shown in example 2, if you downgrade a card with an annual fee then you will get a prorated refund but you will also be charged a prorated annual fee of the new card. However, you can cancel the new card, within 30 days of requesting downgrade, and get a full refund of the charged prorated annual fee.

In above screenshot, a card with $450 annual fee is renewed but after 2 months it is downgraded to a card with $95 annual fee. First, annual fee for 12-3 = 10 months was refunded i.e. 450/12*10 = $325, then a new annual fee was applied for 10 months, i.e. 95/12 * 10 = $79.16. But since  the downgraded card was cancelled, a full refund of $79.16 is provided. Overall, only 450-375 = $75 is paid to keep a card long enough to chew through $200 airline credit for yet another year.

Summary

Downgrading to get prorated refund is a known feature but downgrading then cancelling, while obvious, is a far less known yet far more useful feature. It will make you rethink the wide notion that you ought to apply in December to triple dip cards with airline credit.

Needless to say this post also applied to bother banks with similar prorated terms and conditions.