"There is a trend toward more fee-based cards, much more so than there has been in the past," says Eric Lindeen, director of marketing at Zoot Enterprises, which provides credit solutions to large financial institutions. "Issuers are looking for more ways to drive revenue from their products."
Why issuers charge a fee
Annual fees are typically associated with rewards credit cards. (They're also common among secured credit cards, where those with poor or thin credit pay from around $29 to $44 for the point of entry.)
Annual rewards card fees tend to fall in the $39 to $175 range, though a few elite travel rewards cards do feature fees that are much higher.
These fees help subsidize miles and points, but according to Lindeen, they're also an attempt to get you to use the card more frequently. Here, basic human psychology comes into play: Customers are more liable to say, "Well, since I've paid for the card, I have to use it," he says. "You value something that costs money more than something that doesn't."
The more a customer uses a particular card, the more its issuer can capitalize on credit cards' two main revenue streams: the interest cardholders pay on purchases and the interchange fees merchants pay to accept the payment method.
This quest for wallet share is "great for consumers," Lindeen says, because it has forced issuers to look for ways to add real value to their rewards programs.
Are the fees worth it?
Not all annual-fee rewards cards, however, are created equal. Some products are "all sizzle, no steak," says John Ulzheimer, president of consumer education at CreditSesame. Other cards are only worthwhile for those with certain lifestyles or spending habits.
Ulzheimer, for instance, happily pays the $450 fee associated with his travel credit card because he utilizes its unlimited airport lounge access, free companion certificate and frequent first-class upgrades.
"If you travel to any extent for business or personally, then (the fee) is beyond well worth it," he says. If you don't, the fee is just a waste.
Ultimately, "the onus is on the consumer" to figure out if a particular product is worth pursuing, says Howard Dvorkin, chairman of Debt.com. He suggests asking, "Why am I paying a fee, and what am I getting for paying a fee?"