How much would you pay for a top-level rewards credit card? $95 per year? $125? How about $550? If you want to know whether a credit card annual fee is worth it, take a careful look at all of the rewards and benefits the credit card offers. Then, ask yourself whether the value you would realistically get from those benefits will outweigh the cost of the annual fee.
Many of today’s best credit cards charge annual fees. But there are also a lot of great no-annual-fee credit cards out there. Don’t assume you have to pay an annual fee if you want to build credit, earn rewards, or take advantage of benefits like travel accident insurance.
Let’s take a look at how credit card annual fees work, reasons to choose a credit card with an annual fee, and how to decide whether paying an annual fee is worth it.
What is an annual fee?
A credit card annual fee is exactly what it sounds like—a yearly fee you pay in exchange for the privilege of using the credit card. Your annual fee appears as an automatic yearly charge on your credit account and is added to your credit card balance.
Expect your annual fee to show up on every anniversary of your card ownership. If you opened an annual fee credit card in February, for example, your credit card issuer should add your annual fee to your credit card balance every subsequent February. Many cards come with a fee waiver 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.
What types of credit cards charge annual fees?
Many rewards credit cards come with an annual fee, especially cards that offer top-level rewards. Travel credit cards and airline credit cards also regularly charge annual fees—in fact, some premium travel credit cards have annual fees as high as $550 per year.
That said, there are many excellent no-annual-fee credit cards on the market, including cards for people who want to earn cash back, travel miles and other types of credit card rewards. If you decide to apply for an annual fee credit card, make sure that the benefits you hope to receive from the card will outweigh the cost of the annual fee.
Reasons to get a credit card with an annual fee
There are several reasons why an annual fee credit card might be better than a no-annual-fee card. In fact, many credit card issuers offer both annual-fee and no-annual-fee versions of popular credit cards. The versions with a fee often come with higher rewards and bigger perks.
Here are three reasons to get a credit card with an annual fee:
Most annual fee credit cards offer higher rates for earning cash back, airline miles, travel points or various other benefits than no-annual-fee cards. For example, the Capital One VentureOne Rewards Credit Card has no annual fee and gives you the chance to earn an unlimited 1.25x miles per dollar on purchases. However, if you pay the $95 fee for the Capital One Venture Rewards Credit Card you can earn an unlimited 2x miles for every dollar you spend.
Better welcome offers
Welcome offers generally require a certain amount of spending within an introductory period, and many cards without an annual fee offer welcome bonus opportunities. Annual fee cards usually give annual-fee-paying cardholders the chance to earn even more cash back or points through valuable welcome bonuses.
For example, Capital One Venture Rewards cardholders might pay a $95 annual fee, but you also have the opportunity to earn 100,000 bonus miles when you spend $20,000 on purchases in the first 12 months from account opening, or still earn 50,000 miles if you spend $3,000 on purchases in the first 3 months. Capital One VentureOne Rewards cardholders, on the other hand, only have the opportunity to earn 20,000 bonus miles after spending $500 on purchases in the first 3 months.
Capital One miles are worth one penny per mile when redeemed for travel statement credits, which means that the VentureOne’s welcome bonus is worth $200. If you were willing to pay the annual fee for the Capital One Venture Rewards card, your welcome bonus could be worth $500 (for the lower welcome offer).
When you pay a credit card annual fee, expect to be rewarded with a few extra perks. 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, ride-share credits, annual travel credits, credits toward TSA Precheck or Global Entry, elite status at various hotels and more. The higher the annual fee, the better the perks. Premium credit cards with high annual fees, like The Platinum Card® from American Express and Chase Sapphire Reserve® that both come with a $550 annual fee, deliver a slew of high-end perks to cardholders.
Do you see why paying an annual fee might be worth it? When a credit card offers the right combination of rewards, discounts and benefits, paying an annual fee—even a high annual fee—could save you money over the long run.
When is an annual fee worth it?
When is a credit card annual fee worth it? If a credit card’s rewards and perks offset the cost of the annual fee, signing up for an annual fee credit card can be a smart move.
That said, an annual fee credit card only makes sense if you are able to take advantage of your credit card’s rewards and benefits. If you sign up for an annual fee credit card because you can earn a large bonus if you spend $3,000 in the first three months, make sure you can put enough purchases on the card to earn your bonus—and make sure you can pay those purchases off. Racking up credit card debt to earn a sign-up bonus is never a good idea.
It’s also a good idea to ask yourself whether you’ll be able to use the extra perks and protections your annual fee credit card offers. If you don’t spend a lot of time in airports and hotels, for example, you might not want to pay a high annual fee for a credit card that offers airport lounge access and hotel status upgrades. On the other hand, an annual fee credit card that offers high cash back rewards could be exactly what you’re looking for.
Some annual fee credit cards offer their biggest bonuses and perks during the first year of card ownership—but remember that an annual fee gets charged every year. When you’re trying to figure out whether a credit card annual fee is worth it, think long term.
Here’s one more tip: If you have a credit card with an annual fee and you no longer think the annual fee is worth it, you can always contact your credit card issuer and ask to downgrade your card to a no-annual-fee version.
Is paying a credit card annual fee worth it? It all depends on what you hope to get out of your credit card. If you can afford the annual fee and plan to take advantage of the card’s rewards and benefits, an annual fee credit card can be a smart financial move. If the annual fee feels too expensive, or if you aren’t sure whether you’ll really use all of the perks the credit card offers, you might want to consider a no-annual-fee credit card instead.