Is a Credit Card Annual Fee Worth it?

When looking for a new credit card, you’re probably looking for the most favorable deal. So why would anyone get a new credit card with hundreds or even thousands of dollars in annual fees? It’s a valid question. But did you know that these cards can offer extra benefits that far outweigh their costs? High annual fee credit cards like travel and rewards cards may cost more up front, but they can save you thousands if you use them wisely. Is a credit card annual fee worth it? Read on to dig deeper.

Understanding Credit Card Annual Fees

Premium cards with high annual fees are not for everyone. If you’re someone who carries a balance from month to month, these cards may not be the best choice for you. Why? Because they often come with high-interest rates. The money you’d end up paying in interest could easily surpass the value of any rewards or statement credit you might earn. So, if you’re in the habit of carrying a balance, it might be better to look for a credit card with a low-interest rate instead.

There’s another scenario where you might ask yourself is a credit card annual fee worth it and if you should considering paying an annual fee for a credit card: when you’re building credit or have a low credit score. If you’ve never had a credit card before, or if you have a poor credit history, you might need to pay an annual fee. This is common for people who are “credit invisible” or “credit ghosts”.

But don’t worry, there are credit cards designed to help you build credit without draining your wallet. One such option offered by a number of credit card issuers is a secured credit card. With these cards, you pay a deposit upfront, which typically matches your credit limit. After a few months of timely payments, your credit card company may return your deposit. So, while you’re putting money down upfront, it’s not truly an annual fee.

If you’re considering applying for either a premium or starter credit card, there are guidelines you can follow to increase your chances of approval.

Travel Rewards Credit Cards

Now, let’s talk about travel credit cards and rewards cards. When asking yourself if an annual fee card is worth it, these cards can be a game-changer for frequent travelers. They come with a long list of valuable benefits that can super-charge your travel experiences and make them much less expensive. However, you don’t necessarily need to pay the upfront cost of an annual fee to get these travel perks. There are plenty of good travel cards and rewards cards out there that don’t fit into the ‘premium cards’ category that don’t charge an annual fee, and provide great travel benefits. More on that below.

But what about cash back? It’s a simple and straightforward reward system. These days, at least 2% cash back on eligible purchases is pretty standard. If you’re still using a credit card that offers 1% cash back on general spending, it might be time to consider an upgrade. There are situations where you can do even better than 2% cash back. That’s where an annual fee card comes into the picture.

Is a Credit Card Annual Fee Worth it? Benefits of Annual Fees

Eating Out: High annual fee credit cards often offer bonus rewards in certain categories. For instance, the American Express Gold Card not only offers points on eligible purchases, but also offers 4X points at restaurants. If you dine out frequently, those points can add up quickly.

Gas: Consider your spending habits. If you live in a city where you don’t drive, a card that offers 4% back on gas, like the Citi Premier Card, might not be beneficial. But if you spend a lot on gas, that 4% back can translate into significant savings.

Suppose you have a larger vehicle with a 20-gallon gas tank. If you fill up twice a month at the gas station at $7 a gallon, you’d spend $280 a month on gas. Over a year, that’s $3,360. If you charge that to a card that gives you 4% back on gas, you’d earn $135 in gas rewards over the year. Is a credit card annual fee worth it in that scenario? Definitely yes!

Groceries: Now, think about other spending categories where you might spend even more. The average annual cost of groceries for US households is nearly $5,000. If your card offers 4% back on groceries and drugstore purchases, like the Chase Sapphire Reserve, that would be about $200 in rewards.

Office Supplies: If you own a small business and spend a lot on office supplies and telecommunications services you could sign-up for the Ink Business Cash Credit Card, which offers 5% cash back in those categories. If you use your card for all of your business expenses, you could earn a significant cash back bonus that you can reinvest into your business.

Travel: If you’re a frequent traveler who spends a lot on dining and travel you should definitely look at getting a travel card. You could use the Chase Sapphire Reserve card, which offers 3X points on travel purchases and dining. Using your card for all your dining, hotel purchases, and travel purchases, could earn you thousands of points that can be redeemed for free flights, airport lounge access, and hotel stays. Some airline cards like the United Explorer Card also offer priority check-in and priority boarding.

Remember, these are just examples. You’ll need to look at your own budget to understand where you spend your money. But as you can see, the rewards from high annual fee credit cards can quickly add up, potentially offsetting the cost of the annual fee.

Alternatives to High Annual Fee Credit Cards

While high annual fee credit cards can offer significant rewards, they’re not the only option. There are other types of credit cards that might be a better fit for your needs. For instance, if you’re looking to save on interest, a low-interest credit card like the BankAmericard® credit card could be a good choice.

If you’re carrying a balance on a high-interest credit card, a balance transfer card like the Citi® Diamond Preferred® Card could help you save on interest and pay down your debt faster. And if you’re just looking for a simple, no-frills card, a no-fee card like the Citi® Double Cash Card could be the way to go.

But what if you’re a frequent traveler who doesn’t want to pay a high annual fee? There are travel rewards credit cards that don’t charge an annual fee, like the Discover it® Miles card. This card offers 1.5x bonus miles on every dollar spent, and Discover matches all the miles you’ve earned at the end of your first year.

Strategies for Maximizing Credit Card Rewards

To get the most out of your high annual fee credit card, you’ll need to be strategic. Here are a few tips to help you maximize your rewards:

Considerations Before Opting for a High Annual Fee Credit Card

Before you decide to go for a high annual fee credit card, there are a few things you should consider. First, these cards require a good deal of organization. Many of the benefits expire after a certain period, so you’ll need to keep track of them to make sure you’re using them before they’re gone.

Second, these cards often come with loyalty to specific brands. If you’re not loyal to a particular airline or hotel chain, you might find yourself booking flights or stays that aren’t the best fit for you just to use your rewards. Some cards also have have a minimum spending requirement each month, so you might find yourself purchasing items you don’t need.

Wrapping Up

Is a credit card annual fee worth it? High annual fee credit cards aren’t for everyone. But if you travel often and can make use of the benefits, they can offer significant value. Remember to consider your spending habits, your travel frequency, and your organizational skills before opting for a high annual fee credit card. With the right strategy, you could find that these cards are worth much more than their cost.

Frequently Asked Questions