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This article was last updated Sep 24, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
You don’t need to pay an annual fee to get a great credit card. There are plenty of cards on the market offering cash back, 0% introductory APR deals and more, with a $0 annual fee price tag.
So what makes it worth paying an annual fee of $95, $99, or even upwards of $450? Depending on your spending habits, some of these cards can help you earn more than you pay to carry them. Read on, and we’ll help you understand how to calculate if it’s worth it for you.
In this article:
- When an annual fee may be worth paying
- Figuring out the math of an annual fee
- Weigh the value of card benefits
- When a card with no annual fee is better
- The bottom line
When an annual fee may be worth paying
When the perks outweigh the annual fee. “If you’re looking for a high-end travel credit card with upscale perks like lounge access, you’re going to have to pay an annual fee to get it,” said Matt Schulz, chief industry analyst at CompareCards. “The good news is that depending on your lifestyle, you can often get value from those cards that far exceed the annual fee that you pay. Your job as a cardholder is to think about how you’ll use the card to understand if that applies to you.”
When you’re trying to rebuild your credit. Another situation where a card with an annual fee might be worth it is if you are trying to rebuild a poor credit history. For example, the OpenSky® Secured Visa® Credit Card is unique in that it doesn’t run a credit check when you apply. Instead, other financial information such as your annual income and monthly housing payment will be considered. This card comes with a $35 annual fee. It’s also a secured card, meaning you’ll have to make a security deposit which will become the amount of your credit limit.
Figuring out the math of an annual fee
In theory, calculating whether or not it’s worth it for you to carry a card with an annual fee is a simple process. You need to add up the rewards you can reasonably anticipate based on your spending patterns, add in the value of additional benefits you’re likely to use, and compare the resulting number against the amount of the annual fee. But there are things to bear in mind.
First of all, rewards points can have different values depending on how you redeem them.
If you’re using the Chase Sapphire Reserve®, which carries a $550 annual fee, for example, points have 50% more value when you redeem them for travel via the Chase Ultimate Rewards® portal. This means 50,000 points equal $750 in value — or, put another way, each point is worth 1.5 cents. But if you redeem points for cash or gift cards, each point is worth 1 cent. And if you use points through Chase Pay for a statement credit or toward a purchase, each point is worth only 0.8 cents. In addition, travel and hotel cards often allow you to transfer points to partner frequent flyer programs. If you plan to do this, pay attention to the transfer ratio, which is how many rewards points from your card are required to constitute a mile under the frequent flyer program.
However, consider any credits or perks the card is offering, which may substantially offset the annual fee. For example, the Chase Sapphire Reserve® offers an annual $300 travel credit, as well as complimentary Priority Pass select membership. Terms apply.
Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.
3X points on travel immediately after earning your $300 travel credit. 3X points on dining at restaurants & 1 point per $1 spent on all other purchases.
One Year Complimentary Lyft Pink ($199 minimum value). Complimentary DashPass subscription from DoorDash after activating by 12/31/21.
- Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
- $300 Annual Travel Credit as reimbursement for travel purchases charged to your card each account anniversary year
- 3X points on travel immediately after earning your $300 travel credit. 3X points on dining at restaurants & 1 point per $1 spent on all other purchases. $0 foreign transaction fees.
- Get 50% more value when you redeem your points for travel through Chase Ultimate Rewards. For example, 50,000 points are worth $750 toward travel
- 1:1 point transfer to leading airline and hotel loyalty programs
- Access to 1,000+ airport lounges worldwide after an easy, one-time enrollment in Priority Pass™ Select
- Up to $100 application fee credit for Global Entry or TSA Pre✓®
- One Year Complimentary Lyft Pink ($199 minimum value). Complimentary DashPass subscription from DoorDash after activating by 12/31/21.
See additional details for Chase Sapphire Reserve®
Second, be aware that some cards will waive the annual fee for the first year. One example of this is the Capital One® Venture® Rewards Credit Card, which charges $95.
On top of that, many high-end travel cards come with good or excellent sign-up bonuses. So when you’re doing the math on whether a card’s fee is worth it, think on an ongoing basis.
“Your decision really needs to come the second year in whether you’re going to keep it,” said Jamie Larounis, a travel loyalty program expert who blogs at The Forward Cabin. If you’ve used up the points, you may weigh closing the card.
Finally, some credit cards offer an annual bonus when you hit a certain spend amount. The World Of Hyatt Credit Card, for example, offers a Free Night Award each year that you hit $15,000 spent on purchases (a year is calculated from when you get the card, not as a calendar year). That’s on top of the Free Night Award you get every cardmember anniversary. So while a sign-up bonus is a one-time thing, annual bonuses can add to a card’s ongoing value. Terms apply.
Weigh the value of card benefits
When you’re calculating the value you’ll get out of a card each year, it’s key to understand how likely you are to use a particular perk — not just how much it’s worth on paper.
“I think the important thing is to add up actual true usage,” Larounis said.
For example, if someone travels only once a year, a credit card that offers airport lounge access but charges an annual fee in the range of $400 may not be worth paying for.
Here are a few perks to look for when evaluating a card with an annual fee:
- Airport lounge access
- An annual credit for incidental airline fees
- A recurring credit for Global Entry or TSA PreCheck
- An annual award of a free hotel night
- Trip cancellation and interruption insurance
- Trip delay reimbursement
- Baggage delay insurance
- Lost luggage insurance
- Priority boarding
- Free checked bag allowance
When a card with no annual fee is better
Neither Schulz nor Larounis recommended paying an annual fee if you want cash back.
“If you just want a straightforward cashback card, there’s really no need to pay an annual fee,” Schulz said. “It’s as simple as that. Sometimes you can pay an annual fee on a cashback card and get higher returns than you would with the no-fee version of the card, but the truth is that most people don’t need to do that.”
Be aware that some cards have spending maximums. Once you hit the spending maximum, the cash back you earn will drop to a lower rate until the quarterly or yearly spend maximum resets. Examples of this are the Chase Freedom® and Discover it® Cash Back, both of which have a 5% quarterly spend maximum of $1,500 in select categories. The Discover it® Cash Back lets you Earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases – automatically. The Chase Freedom® lets you Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories every 3 months. Unlimited 1% cash back on all other purchases.
However, there are cards with no spending maximums. For example, the Citi® Double Cash Card – 18 month BT offer, with which you can earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. This card charges a $0 annual fee.
If you currently have a card with an annual fee and you decide you’re not going to use it anymore, you probably want to consider canceling it — or better yet, downgrading it.
“To downgrade [your card], call your issuer and ask to be downgraded to a no-annual-fee version of the card you’re closing,” Schulz said. “It happens all the time, and if you’re a good customer, banks should be happy to help you.”
By downgrading rather than closing a card, you’re likely to keep your credit score in better shape. If you close a card, your available credit decreases, and your average age of accounts may decrease as well. For details, check out our guide on factors that affect your credit score.
The bottom line
If you’re looking for a travel rewards card that can get you flights and hotel stays using points, you’ll likely want to consider a card that charges an annual fee. There are cards that don’t charge an annual fee, such as the Capital One® VentureOne® Rewards Credit Card and the Marriott Bonvoy Bold™ Credit Card, but a card with an annual fee will usually offer a higher rewards rate and more benefits. Of course, make sure to pay your card off in full every month, or interest charges will negate the rewards you earn.
Read: Best Hotel Credit Cards
For those who have a card with an annual fee and are considering whether or not it’s worth it to keep the card, Larounis suggested checking if your card issuer will waive the fee.
“There are many opportunities where you can get that waived if you ask, or get a retention bonus that may be worth the amount of the annual fee,” he said.
If you’re looking for cash back rather than points or miles, you might not need a card with an annual fee. Take a look at our list of the best cashback credit cards on the market.
The information related to the Chase Freedom® has been independently collected by CompareCards and has not been reviewed or provided by the issuer of this card prior to publication.