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Paying a recurring annual fee to just be able to use your card sounds like a bad deal. Indeed, for many people, annual fee credit cards don’t even come into consideration.

However, in many cases, annual fee credit cards can be of much greater value than their no annual fee counterparts. In fact, we can go as far as to say that as long as your return in perks, increased earning rates and bonuses is higher than the annual fee you pay, then selecting the annual fee credit card will always be worth it.

Let’s dive into the benefits and common characteristics of annual fee credit cards, and look at situations where paying the annual fee will be worthwhile, as well as when it won’t be.

What Is a Credit Card Annual Fee?

As the name suggests, a credit card annual fee is a yearly payment due on your account anniversary. It’s paid to your card issuer and enables you to continue using your card. In your first year, the annual fee is usually billed on your first monthly statement.

Credit card annual fees range from $50 to $700 for premium cards.

Some credit cards allow you to waive the annual fee in the first year, as an incentive for an initially higher return in benefits and point earning.

Similarly, if you’re the holder of an annual fee credit card that no longer matches your spending habits and travel goals, you may be able to contact your card issuer for either a fee waiver, reduction, or a downgrade to their no annual fee alternative card. This is also known as a retention offer.

Annual fee of credit card

Why Do Credit Cards Have Annual Fees?

Credit card issuers charge annual fees for one of two reasons.

The most common reason for annual fees is increased membership benefits. This can include everything from higher welcome offers and competitive bonus category earning rates, to complimentary airport lounge access and free one-night stay certificates for hotel cards. Generally speaking, the higher the annual fee, the greater the financial value of benefits.

The other reason card issuers charge annual fees is to protect against risk. Cards designed for people with poor credit histories often charge higher fees. Card issuers assess your risk as a borrower—in other words, how likely you are to default on a payment. By charging higher annual fees to those with poor credit history, the card issuer mitigates some of this risk.

When Is It Worth Paying an Annual Fee?

As long as the benefits outweigh the cost of the annual fee, you should almost always go for the annual fee option of any given card.

With that in mind, here are the main reasons why paying an annual fee for a credit card can be worth it.

Increased Bonus Category Earning Rates

Depending on the card, different bonus categories, as well as different bonus category earning rates, will be available. One card may offer increased point earning per dollar spent on mobile wallet purchases while another offers bonus point earning on drugstore purchases.

Generally speaking, annual fee credit cards offer higher bonus category earning rates, particularly compared to no annual fee versions of the same card.

Take the Blue Cash Everyday® Card from American Express versus the Blue Cash Preferred® Card from American Express.

The Blue Cash Everyday® Card from American Express comes without an annual fee (see rates and fees) and allows you to earn 3% cash back on grocery purchases, of up to $6,000 per year in purchases (then 1% thereafter). You’ll earn the 3% back in the form of Blue Cash Reward Dollars, which can then be redeemed for statement credits, without any minimum required amount.

In contrast, the Blue Cash Preferred® Card from American Express comes with a $0 introductory annual fee for the first year (see rates and fees), $95 after that, and earns you 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1% thereafter). Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.

In the first instance, $6,000 in purchases will net you $180 in cash back. If you instead decide to go for the annual fee card, that same $6,000 in purchases will earn you $360 in your first year—double the amount in cash back. For subsequent years, where you’ll pay the annual fee of $95, the equivalent spend will still put you $85 ahead of the no annual fee card option ($360 – $95 = $265, minus $180 = $85).

This is just one example out of many, and it doesn’t apply to cashback cards only.

Take the following two IHG® co-branded Chase reward credit cards as an example.

The no annual fee IHG One Rewards Traveler Credit Card from Chase offers:

  • 17X total points per dollar spent at IHG hotels and resorts
  • 3X total points on utilities, select streaming services, dining and gas station purchases
  • 2X points on all other eligible purchases

On the other hand, the IHG One Rewards Premier Credit Card, with an annual fee of $99, offers:

  • 26X total points per dollar spent at IHG hotels and resorts
  • 5X total points on travel, gas station, and dining purchases 
  • 3X points on every other eligible purchase

In this instance, the annual fee version of the card offers significantly higher bonus category earning rates, with the ability to earn IHG Rewards, which can be redeemed for stays at IHG hotels and resorts.

The same applies to airline cards, as well as almost every other credit card reward currency—the annual fee version of the card always offers higher bonus category earning rates. So if you want to earn a specific reward currency to redeem for your travel goals, then selecting the annual fee version of the card could be well worth the extra fee.

To see if the annual fee version of a given card is worth it, simply calculate how much your annual expenditure would net you in cash back, miles or reward points and compare this to what the equivalent spend would get you when using the no annual fee card. If you can offset the annual fee and earn more back than you would on the no annual fee card, then it’s smarter to opt for the annual fee version.

Higher Welcome Offers

Cards that carry annual fees normally come with far more lucrative welcome offers than non-annual fee cards. In many cases, the welcome offer alone will cover the annual fee.

For example, the no annual fee Ink Business Unlimited® Credit Card from Chase typically offers a welcome offer of around $750 bonus cash back after spending $6,000 on the card within the first three months after account opening.

Chase Ink Business Unlimited® Credit Card

$750 Cash Back after you spend $6,000 in 3 months

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Compare this to the Ink Business Preferred® Credit Card, with an annual fee of $95, which usually offers a welcome offer of approximately 100,000 bonus points after spending $8,000 within the first three months. 

The difference between the welcome offers is significant when comparing the card with an annual fee and the card without an annual fee.

Chase Ink Business Preferred® Credit Card

120,000 Chase Ultimate Rewards Points after you spend $8,000 spend in 3 months

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Not only is the annual fee card’s welcome offer higher—it also offers you different redemption options for increased flexibility and earning. You can either redeem your 100,000 Chase Ultimate Rewards for $1,000 in cash back, or you can redeem them for 25% more value (for a total of $1,250) via Chase Travel℠ when spending it on travel purchases.

Even if you deduct the annual fee from the welcome offer’s monetary value, in most cases, you’ll still come out ahead—and this doesn’t account for the many other perks, benefits and increased bonus category earning rates you’ll have access to!

Let’s take another example—this time, a personal card.

The no annual fee Capital One VentureOne Rewards card offers a welcome offer of typically around 20,000 bonus miles after having spent $500 within the first three months from account opening. In contrast, the Capital One Venture Rewards Credit Card, with an annual fee of $95, typically has a welcome offer of around 75,000 bonus miles after you spend $4,000 within the first three months.

Capital One Venture Rewards Credit Card

Limited-Time Offer! $250 to use on Capital One Travel in your first cardholder year, plus earn 75K bonus miles

after you spend $4,000 on purchases within 3 months from account opening.

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You may notice that the annual fee version of the card requires a much higher minimum spend to earn the welcome offer. However, if this is money you would spend anyway (in other words, it matches your current spending habits), or if you have a large purchase coming up that would equal the minimum spending threshold, then earning that welcome offer will neither be a challenge nor cost you more.

To briefly put minimum spending thresholds into perspective, the average American household has a monthly expenditure of $5,577. Housing-related costs account for $1,855 of this, meaning that $3,722 is spent on all other purchases. The majority of these latter costs could be charged on a credit card, adding up to a total expenditure of $11,166 across three months.

This means that while a welcome offer with a minimum spend of, for example, $4,000 across the first three months may sound hefty, it’s well within the reach of the average American. 

As long as the welcome offer can be earned without radically changing your spending habits, then it’s always worth earning. Moreover, welcome offers are a key part of a solid credit card strategy.

Welcome Bonus

Earn Point Currencies of Greater Value

Card reward currencies are of different values. In some cases, annual fee cards can give you access to higher-value point currencies.

For example, the Chase Freedom Unlimited® and Chase Freedom Flex® are two no annual fee cards that earn cashback-only rewards (assuming these are your only cards from Chase).

However, if you opt for one of Chase’s annual fee cards, such as the Chase Sapphire Preferred® Card or Chase Sapphire Reserve® card, then you’ll be able to earn Chase Ultimate Rewards instead of only earning cash back—one of the most valuable point currencies available today.

With a Chase Sapphire Preferred card, you can redeem your Ultimate Rewards for travel purchases at 25% more value (1.25 cents per point), and with the Sapphire Reserve card, this increases to 50% more value (1.5 cents per point) for travel when purchased through Chase Travel℠.

Chase Sapphire Reserve®

Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. 

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On top of this, by owning one of Chase’s annual fee-incurring cards, you’ll be able to transfer the cashback points in your Chase Freedom Unlimited or Freedom Flex card to your Sapphire account and turn them into Chase Ultimate Rewards.

In this instance, the annual fee card not only gives you access to a point currency of greater value—it increases your redemption options and earning ability across other cards.

Likewise, compare the no annual fee Citi Rewards+® Card with the $95 annual fee Citi Premier® Card.

While the Rewards+ card earns Citi ThankYou points, you’re limited in the ways you can redeem them, with fewer transfer partners and poorer ratios. By paying the annual fee for the Premier card, your ThankYou points will carry greater value and give you a wider range of transfer and redemption options.

Receive Annual Credits and Bonuses

Aside from higher welcome offers and bonus category earning rates, annual fee credit cards often come with annual cardmember bonuses and statement credits.

Here are just a few examples of what’s on offer.

The Marriott Bonvoy Boundless® Credit Card from Chase offers a Free Night Award every year after your account anniversary. The Award is valid for a one-night hotel stay at any Marriott hotel or resort with an equivalent redemption value of up to 35,000 points (excluding incidentals).

Marriott Bonvoy Boundless® Credit Card

Marriott Bonvoy Boundless® Credit Card

Earn 3 Free Night Awards (each night valued up to 50,000 points)

After you spend $5,000 on purchases in your first 3 months from your account opening

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Marriott points have an estimated average redemption value of 0.8 cents per point. That means your Free Night Award has an equivalent value of $280, which more than offsets the annual fee of just $95—when combined with the value of its welcome offer and bonus category earning rates, you’ll be more than ahead of its annual fee.

Similarly, Chase’s co-branded The World of Hyatt Credit Card offers an annual Free Night award at any Category 1–4 Hyatt hotel or resort after your account anniversary. And if you manage to spend a total of $15,000 on the card within a calendar year, you’ll earn a second free night.

Hyatt points have a value ranging between 1.7 to 2.3 cents per point. The peak price for Category 4 Hyatt hotels and resorts is approximately 18,000 points. That means if you redeem your Free Night certificate during peak season at a Category 4 hotel or resort, you’re easily getting a return value between $306 to $414 per year—offsetting the annual fee of $95 significantly.

The World of Hyatt Credit Card

The World of Hyatt Credit Card

Earn 30,000 Bonus Points

– 30,000 Bonus Points after you spend $3,000 on purchases in the first 3 months from account opening.
– Plus, up to 30,000 More Bonus Points by earning 2 Bonus Points total per $1 spent in the first 6 months from account opening on purchases that normally earn 1 Bonus Point, on up to $15,000 spent.

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Annual bonuses are not limited to hotel cards only. 

With the Southwest Rapid Rewards® Plus Credit Card from Chase, its annual fee of $69 earns you an annual account anniversary deposit of 3,000 points as well as an annual Companion Pass-qualifying point boost of 10,000.

Southwest Rapid Rewards® Plus Credit Card

Earn 50,000 points after you spend $1,000 on purchases in the first 3 months from account opening.

LEARN MORE 

Likewise, some credit cards come with annual statement credits that when combined with welcome offers and bonus category earning rates, can more than outweigh annual fees.

Here’s a brief taster of what’s offered:

  • The Chase Sapphire Reserve card comes with an annual statement credit of $300 for travel purchases—an annual fee of $550
  • The U.S. Bank Altitude® Reserve Visa Infinite® Card offers $325 in annual statement credits for eligible travel purchases, takeout, restaurant delivery and dining—an annual fee of $400
  • The Capital One Venture X Rewards Credit Card comes with an annual statement credit of $300 for purchases made through Capital One Travel—an annual fee of $395

In every case above, the statement credit alone doesn’t outweigh the annual fee, but, when combined with the welcome offer, you’ll almost always offset the annual fee.

Access Cardmember-Exclusive Perks

Some annual fee cards come with exclusive cardmember perks, which themselves go a long way to offset the annual fee.

The Chase Sapphire Reserve card comes with complimentary airport lounge access after a one-time enrollment with Priority PassTM Select,  giving you free access to 1,300+ VIP lounges in over 500 cities worldwide. Considering that Priority Pass Standard Membership begins at $99 per year plus $35 per visit, this cardmember perk is of massive value. The more you use airport lounges, the greater your return value on this perk will be.

For an annual fee of $95, the Capital One Venture Rewards card offers reimbursement of the TSA PreCheck® or Global Entry application fee up to $100, issued as a statement credit. This alone more than offsets the annual fee.

And the juggernaut of annual statement credit perks—The Platinum Card® from American Express—offers the following:

  • Up to $200 hotel credit on prepaid Fine Hotels + Resorts or The Hotel Collection (requires a minimum two-night stay) bookings through American Express Travel 
  • Up to $189 per year in statement credits toward a CLEAR® Plus membership
  • Up to $200 airline incidentals fee credit
  • Up to $200 Uber Cash, issued in increments of $15 per month with a bonus of $20 in December
  • Up to $100 per year for purchases at Saks Fifth Avenue or saks.com, issued as biannual statement credits
  • Up to $240 digital entertainment credit, issued in $20 monthly statement credits for eligible purchases on Disney+, The Disney Bundle, ESPN+, Hulu, Peacock and the New York Times (enrollment required)
  • Up to $300 Equinox credit, issued in $25 monthly statement credits when you use your Platinum card to pay for a membership to any Equinox club or toward an Equinox+ subscription

These add up to a value of $1,429 in statement credits alone—more than double what you’ll pay for the annual fee of $695 (see rates and fees). 

The Platinum Card® from American Express

Earn 80,000 Membership Rewards® points after you spend $8,000 on purchases on your new Card in your first 6 months of Card Membership. Apply and select your preferred metal Card design: classic Platinum Card®, Platinum x Kehinde Wiley, or Platinum x Julie Mehretu.

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When Is It Not Worth Paying an Annual Fee?

It’s no mystery as to when an annual fee card isn’t worth it: When the annual fee ends up costing you more than what you get in return (welcome offers, perks, credits, annual bonuses and bonus earning rates) then it doesn’t make sense to continue paying for the card.

In such an instance, closing the card is not always the best option. Instead, contact your card issuer for a retention offer, such as a downgrade to the no annual fee version of the card, or fee waiver, if available.

Here are some circumstances where having an annual fee credit card doesn’t make financial sense.

No Annual fee

Your Monthly Expenditure Is Too Low

If you generally spend less than the average American or opt for a card with higher-than-average minimum spending thresholds for welcome offers, you may end up spending more on the annual fee than what you get in return.

Owning a credit card should not encourage you to overspend. Timely bill payment and treating your credit card like a debit card are the two cornerstones of discipline supporting any successful credit card strategy.

However, credit cards do require some degree of spending for you to offset the annual fee and reap the additional benefits.

If you’ll end up spending more on the annual fee than you’ll receive from the card, then opting for a no annual fee card is your best option.

For example, the Capital One Spark Cash Plus card comes with an annual fee of $150 and earns, among other perks:

  • 5% cash back on hotels and rental cars when booked through Capital One Travel
  • 2% cash back on all other purchases 

In contrast, the Wells Fargo Active Cash® Card is free of annual fees and earns 2% cash back. 

With the Spark Cash Card, you’d need to spend a minimum of $7,500 per year to simply break even on the annual fee. Meanwhile, that $7,500 spent could net you $150 cash back when using the Wells Fargo card instead.

In this instance, the no annual fee card makes more sense, particularly if you won’t use the additional benefits and perks associated with the annual fee card.

Likewise, being able to meet and earn welcome offers is a key part of boosting your point-earning ability. It’s also key for offsetting the annual fee. If you aren’t likely to earn a welcome offer, then consider the no annual fee alternative of the same card, which often has a lower minimum spending threshold for earning the welcome offer.

Analyzing your expenditure and performing some simple math can prevent you from wasting money on an annual fee that’s not worth paying.

The Card Doesn’t Match Your Spending or Travel Goals

Related to how much you spend is the consideration of how and where you spend your money, as well as what your travel goals are.

A card that offers bonus cash back or point earning on grocery shopping is useless for the cardholder who only eats out. Likewise, a card that earns Southwest Rapid Rewards points is of little relevance to the cardholder who wants to fund flights to Europe with points.

Choosing a card that aligns with your travel goals is key to maximizing your expenditure, point-earning ability and offsetting any annual fee.

On top of this, your card needs to match your spending habits—not just your total expenditure. This involves selecting a card based on bonus categories that align with your current spending habits, as well as one with an attainable welcome offer.

Take the U.S. Bank Altitude® Reserve Visa Infinite® Card, which earns 3X points on mobile wallet and travel purchases, offers a $325 statement credit for eligible dining, takeout, delivery and dining purchases, and comes with a very lucrative welcome offer, among other perks. It comes with an annual fee of $400.

Now, if these categories match your lifestyle and current spending habits, offsetting that $400 will happen almost without even trying. But if grocery shopping and streaming service purchases via card payment are your top expenses, it may not be your best bet. 

This principle applies not only to the discussion of annual fee versus no annual fee cards but also to the selection of which annual fee card.

Bottom Line

An annual fee of $695 per year may seem exorbitant for “just” a credit card. However, if you combine the welcome offer, cardholder perks, annual benefits and credits, and bonus category earning rates, and calculate their total value, you’ll see that in most cases they offset the annual fee by a longshot.

But there’s more to it than simply calculating the theoretical maximum value you could get from holding and using the card. You need to make sure that your current spending and lifestyle habits are suited to the card so that you get a return value far higher than the annual fee you pay.

If the annual fee will cost you more than the return value, then either look for other annual fee cards with different bonus categories or consider the no annual fee alternative versions.