Is An Annual Credit Card Fee Ever Worth It?
Are credit card annual fees worth the price? Keep reading to learn when it makes sense to keep a credit card with a fee and when you won’t get your money’s worth.
May 18, 2022
With so many great credit cards on the market that don’t charge an annual fee, it can be hard to see why paying for a credit card is necessary. There’s no denying there are some great no-annual-fee cards available to you, but you may not want to dismiss an annual fee card before you evaluate whether or not the perks of the credit card outweigh the annual fee.
So, are credit card annual fees worth it? Keep reading for more insight.
Potential to earn more rewards
Credit cards with annual fees generally come with better perks than credit cards that don’t charge a fee. In some cases, the value of these rewards may cancel out or outweigh the cost of the annual fee.
Let’s look at an example of how this can work. The Capital One Venture Rewards Credit Card comes with a $95 annual fee, and you can earn an unlimited 2x miles for every dollar spent. If you want to skip the annual fee, you can consider the Capital One VentureOne Rewards Credit Card instead. While this card has no annual fee, you only earn 1.25x miles for every dollar spent. You can see here how the enhanced rewards amount can lead to earning more rewards with the more expensive credit card.
Both of these Capital One credit cards are marketed as travel rewards cards, and redeeming accumulated rewards points for travel booked through Capital One will reap the biggest benefit. Rewards redeemed in this way have a 1:1 benefit. Redeeming rewards points on these two cards for cash back is generally the least beneficial to card holders, as that option can reduce the value to a mere half-cent per point accumulated.
Before applying for a credit card that comes with an annual fee, take a look at your general spending habits and estimate how many points you might expect to accumulate with regular card usage. You may earn enough miles or cashback to outweigh the annual fee.
Valuable welcome offers
Speaking of perks, you can generally expect to find better welcome offers when you get a new credit card with an annual fee. Here’s a real-life example of how the welcome bonus value can surpass the cost of your credit card’s annual fees.
The Chase Sapphire Preferred® Card makes it possible to earn 80,000 bonus points after you spend $4,000 on purchases in the first three months of having your new credit card. When you redeem those 80,000 points on travel booked through the Chase rewards portal, you earn a $1,000 welcome bonus that cancels out a decade's worth of the credit card’s $95 annual fee.
A welcome bonus is a one-time deal, so it’s important to determine whether the cost of the annual fee is justified. With a potential bonus as large as $1,000, you have a lot to gain, but not all cards offer a welcome offer of that value.
Alongside having an opportunity to earn rewards points that translate into cash back, gift cards or travel miles, credit cards can come with some pretty neat perks. For example, plenty of travel cards offer access to airport lounges, discounts on ride-share apps and the chance to enjoy no foreign transaction fees. One perk travelers may want to look out for when choosing a new travel credit card is free TSA Precheck or Global Entry enrollment. The cost of Global Entry is $100, so right there you can cancel out a solid chunk, if not all, of your card’s annual fee.
When is an annual fee worth it?
When do you pay an annual fee on a credit card? Typically, you will pay this fee once a year. The cost of the annual fee will be added to your first credit card statement and then subsequently will appear on your statement once every twelve months.
Let’s summarize. Are credit card annual fees worth it? Again — it’s important to do the math here. Whether or not it’s worth it to you will depend on your personal budget, the credit card you apply for and how much use you stand to get out of the credit card’s perks.
Evaluating how to take advantage of welcome offers is a great place to start, but make sure you'll likely be able to recoup the annual fee year after year because of the credit card’s ongoing rewards offerings. If you like to cook and work from home, then a credit card that focuses on giving out extra points for gas and dining may not be the right fit for you.
If you currently have a credit card that charges an annual fee, brush up on your credit card’s rewards offerings to see where you can get more use out of your credit card.
These are some common credit card perks that are worth looking into:
Extended warranties. See if your credit card offers you warranties that extend existing warranties found on purchases you make using the credit card.
Travel insurance. Travel credit cards and even non-travel credit cards often offer some form of travel insurance that provides coverage for trips booked using the card.
Rental car insurance. Before you sign up for rental car insurance on your next trip, see if your credit card offers some form of coverage.
No foreign transaction fees. Plenty of credit cards charge a foreign transaction fee for each purchase made abroad. If your card doesn’t charge this fee, you can save a lot of money while traveling.
Rewards points. You will earn rewards points whenever you make purchases and they can be redeemed to pay for things like gift cards or hotel rooms.
Cash back. Want cash instead of a night in a swanky hotel? Plenty of credit cards offer some form of cash back.
Travel miles. If you love to travel, see how many miles you might potentially earn that can help you save on your next flight.
If one day you decide that you aren’t getting enough use out of an annual fee, you do always have the option to request a downgrade through your credit card issuer. They should be able to downgrade you to another one of their credit cards that doesn’t charge an annual fee.
Want to pay down your credit card debt faster so you can focus on enjoying your cardholder rewards? Try Tally†! Tally is a credit card debt repayment tool offering a lower-interest line of credit that can help streamline your repayment process.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.