There are plenty of excellent options in the credit card universe that come without paying for the privilege, so why apply for a card that charges an annual fee?
Cards with annual fees often come with high end perks, sign-up bonuses and opportunities to earn greater rewards or more cash back. Whether an annual fee is worth it for you will depend on your spending habits, how closely the rewards structure aligns with purchases you’re already making or planning to make and if you’re able to take full advantage of a card’s additional perks.
What is an annual fee?
A fixed price cardholders are required to pay each year on select credit cards to establish or renew their account.
What are the benefits of credit cards with annual fees?
Annual fee cards tend to offer higher rates for earning cash back, airline miles, travel points or various other benefits. Additionally, credit card companies will also give annual-fee-paying cardholders the chance to earn extra money or points through valuable welcome bonuses.
Cards with an annual fee often feature benefits such as trip cancellation insurance, lost luggage reimbursement, travel accident insurance, no foreign transaction fees and free checked bags to make your travel experiences as hassle-free as possible. Some cards go even further, offering features like airport lounge access, rideshare credits, annual travel credits, credits towards TSA PreCheck or Global Entry, elite status at various hotels and more.
The higher the fee, the better the benefits
With most cards, annual fees fall in the $50 to $100 range, although some premium credit cards cost as much as $550 per year. The annual fee tends to be directly tied to your rewards structure, so paying a steeper charge will likely give you access to additional perks and even more lucrative earning opportunities.
For example, one popular and affordable rewards card is the Chase Sapphire Preferred® Card, which comes with a $95 annual fee. You can earn unlimited 2x points on any restaurant or travel purchases and 1x points on all other purchases. Upgrading to Chase’s luxury travel offering, the Chase Sapphire Reserve®, will land you with a $550 annual fee, but comes with access to premium rewards. You can earn 3x points on all dining and travel (after the $300 annual travel credit) and 1x points on all other purchases. Card perks include access to airport lounges with Priority Pass™ Select lounge membership, a $300 annual travel credit, a credit toward Global Entry or TSA PreCheck, and various travel extras, including trip cancellation insurance, lost luggage reimbursement, emergency evacuation and transportation and more.
In this case, increasing your annual fee means increasing your earning potential and travel perks and if you’re a frequent traveler in a position to make the most of them, these benefits can easily outweigh the hefty fee.
How to know if an annual fee is worth it for you
Consider your spending and lifestyle
Annual fee cards often feature bonus earning in one or more of the following categories: dinging, travel, gas, groceries and/or entertainment, so find a credit card that matches the way you typically spend. That way, you’ll have no problem utilizing it to its fullest when you’re at the supermarket, out to your favorite restaurant or booking another flight.
Annual fee cards are typically loaded with perks geared toward frequent travelers. While gaining access to things like airport lounges, top tier hotel memberships and a variety of travel protections like car rental insurance and lost luggage insurance is certainly nice, it may not be worth the cost if you’re only an occasional flyer.
Assess your budget
In addition to your categorical spending, consider whether you spend enough to make an annual fee card worth it. Even when your spending tendencies fit a card’s bonus categories, if your routine monthly expenses wouldn’t earn you the sign-up bonus and/or you don’t think you spend enough to earn the annual cost back, look to another card.
If you know you have a big purchase coming up, like a holiday or new car, this could be an opportunity to sign up for an annual fee card and capitalize on its sign-up bonus. Just be sure your spending habits will still reward you after the welcome period and you can afford the yearly fee going forward.
Compare no-fee options
Many credit cards come with no annual fee, and although that typically scales down the rewards structure, many options still provide significant earning potential. Plus, there’s no worry of whether you’d need to spend a certain amount to ensure you’re getting your money’s worth. There are a plethora of no annual fee credit cards offering competitive cash back and travel earning potential, although they may require a good or excellent credit score, so you may need to take the time to improve your credit score before applying
When are annual fees charged?
Annual fees are typically billed as soon as the account is opened or within a few weeks. Your annual fee is charged on the anniversary of this date each year, although most providers will allow you to change the date of your annual fee. Many cards also waive the annual fee for your first year, so it’s important to contact your issuer or read through your credit card agreement to know how and when your fees are applied.