Are Credit Cards With Annual Fees Worth It? [2024]
By Maddy Scheckel There are over 500 million active credit cards in the U.S.
Most don’t charge an annual fee.
But those that do make a simple claim: You’ll come out ahead in the end.
So – is that claim true? Are credit cards with annual fees worth it?
It depends.
You’ll have to figure out: Do the rewards/benefits add up to more than the annual fee?
The math can get confusing, but I’m here to walk you through it.
So buckle up, and have your calculator at the ready.
It’s time to dive into the world of credit card annual fees!
What is a Credit Card Annual Fee?
A credit card annual fee is a lump sum charged each year as long as a card stays open. You can think of it as the “price” of a credit card or even a subscription.
Not all credit cards charge an annual fee. In fact, most don’t.
Which raises the question: Why do cards with annual fees even exist?
Here’s why: Despite the annual fee, the card’s rewards and perks can end up benefiting the cardholder.
So, are credit cards with annual fees worth it? You’ll have to decide for yourself on a case-by-case basis.
What Makes a Card with an Annual Fee Worthwhile?
There’s a vague answer to the question, “Are credit cards with annual fees worth it?” That answer is “sometimes.”
But vague answers don’t do you much good as a consumer.
Here’s the question you should really be asking: Is this credit card with this annual fee worth it to me right now?
And the answer to that question will depend on a few key factors.
The Chance to Build Credit
One great way to improve your credit score is by borrowing and then meeting your obligations – but you can’t do that if nobody will give you a loan!
Enter: Credit cards with an annual fee.
Some of these cards are easier to qualify for, making them great for building credit.
Let’s say you’re looking for a card – and the only options have annual fees. It kind of stinks – I get it – but you have to take what you can get.
And you know what?
If you take that card, pay off your balance each month, and lift your credit score in the process, the annual fee could end up being worth it.
And see how much you could save by learning how to cancel all subscriptions on your debit card or credit card.
CashBack Rewards
Cashback rewards are just what they sound like: money you get back from the credit card company when you make certain kinds of purchases.
But cashback cards often have annual fees. Which means it’s time to break out the calculator.
Imagine that a credit card offers 2% cash back for groceries – but also has a $100 annual fee.
If you spend over $5,000 dollars on groceries in the year, you’ll end up getting more than $100 back. So, the card would be worth it.
Of course, the calculations won’t always be so simple. Cards often have different cashback offers for purchases in various categories: 2% on groceries, 3% on entertainment, etc.
But if you keep your calculations organized, you can answer that age-old question: Are credit cards with annual fees worth it?
Travel Points and Other Travel-Related Perks
Credit cards with annual fees often offer points for certain types of purchases.
Typically, these points can be redeemed to pay for travel-related goods and services.
There are also other travel-related perks to look for:
- Free trip cancellation
- Baggage protection
- Free checked bags
- Early boarding
- Access to airport lounges
- Free hotel rooms
- Rental car insurance coverage
You can often access more rewards by choosing a card that’s co-branded with an airline or hotel chain.
Do you tend to book with the same airline every time? Then this is the option for you!
A Significant “Welcome Offer”
Some cards will give you bonus money early on – if you hit certain spending amounts during your first few months with the card.
Sometimes, the reward will be enough to cancel out the annual fee.
But be careful. It can be tempting to take this kind of deal, then use it as “permission” to overspend.
I can see the thought bubble now: “But I have to splurge this month. It’s the only way to get the money back from my card!”
Only take this kind of offer if you’re planning to hit the spending amount anyway.
Source: Unsplash
What to Consider Before Getting a Credit Card with Annual Fees
Still wondering, “Are credit cards with annual fees worth it?”
Before deciding, you’ll have to look carefully at the specific factors at play.
1 – The Value of the Rewards
How much do the rewards add up to?
In the case of monetary rewards, the answer is straightforward.
Look at all the rewards, consider your spending habits, and then determine how much you’ll end up saving.
With non-monetary perks, you’ll have to consider your personal values.
Have you always dreamed of relaxing in the comfy chairs at the airport lounge? If so, then factor it into your decision.
2 – The Annual Fee
This, of course, is the big number at the heart of your decision.
Once you’ve tallied up the total value of the rewards, you have to compare it to the fee.
Unless it’s an improved credit score you’re after, the logic is simple:
Do the rewards add up to more than the annual fee? Then go for it!
Or
Is the annual fee greater than the value of the rewards? Then it’s probably a hard pass.
3 – Whether the Fee is “Waived” for the First Year
There’s one small caveat to the “don’t take a card if the fee is greater than the rewards” logic:
Sometimes, the fee is waived during the first year.
I see you – I know you’ve done the “cancel right before the free trial ends” thing before.
This is the same idea, just with a credit card.
If you cancel before the first year is up, you’ll have enjoyed the rewards at no cost. And if you end up deciding the rewards are worth it, you can stick with the card and accept the fee.
A win-win. Not every day do you see one of those in personal finance!
Top Credit Cards with Annual Fees
Chase Sapphire Preferred Card
With lots and lots of travel points, the Chase Sapphire Preferred Card is great for people on the go.
Snapshot:
- Special bonus for spending $4,000 in the first three months
- Five times the points for travel-related spending
- $95 annual fee
Blue Cash Preferred Card from American Express
With a generous cashback program, this card can help you seriously stretch your grocery budget.
Snapshot:
- 6% cash back on groceries and streaming services
- 3% cash back on transit
- No fee the first year – then $95 after that
Capital One QuicksilverOne Cash Rewards Credit Card
This card is available to people with only fair credit – making it a great way to improve your credit score in exchange for a super-reasonable fee.
Snapshot:
- 1.5% cash back for all purchases
- $39 annual fee
Pros and Cons of an Annual Fee Credit Card
Pros:
- Cash back rewards. You can end up saving serious money over the course of the year.
- Travel rewards/perks. Whether you travel for work or pleasure, the advantages could easily outweigh the annual fee.
- Chance to build credit. A card with an annual fee could be your only option – making it a great way to boost your credit score.
- You can always cancel before the second year begins. Find you’re coming out behind? You can limit the damage with a timely cancellation.
Cons:
- The annual fee. You’ll have to do the math to make sure the card is worth it.
- You can get tempted into overspending. So maybe a card is worth it – if you spend more than you should. If you let the logic of the card overpower the logic of your budget, you can end up in a bad place.
Source: Unsplash
Commonly Asked Questions About Credit Cards With Annual Fees
Is It Worth It to Pay an Annual Fee for a Credit Card?
It can be worth it to pay an annual fee for a credit card if the perks and rewards end up being more than the annual fee. You’ll have to look at your spending habits and goals, then do some calculations.
Is It Better to Have No Annual Fee?
While annual fees are obviously bad at first glance – no one likes paying fees! – some cards with fees end up being worth it. Do the rewards add up to more than the fee? Then the card may be better than other options.
Is It Normal to Have An Annual Fee on a Credit Card?
Most credit cards don’t have annual fees, but having an annual fee is still completely “normal.” Cards often charge fees because they offer perks like cash back or travel points.
Is It Good to Close a Credit Card with an Annual Fee?
Closing a credit card with an annual fee is a good idea if the fee is higher than the value of the rewards. Let’s say the rewards from a card saved you $180, but the annual fee is $250. Unless you need the card to help build credit, your best bet is to close the card.
Do All Credit Cards Have an Annual Fee?
Most credit cards don’t have an annual fee. If you don’t think paying a fee will be worth it, you can apply for one of the many cards that don’t have fees.
Credit Cards with No Annual Fee?
Most credit cards have no annual fee. If you have decent credit, you should be able to qualify for one of them.
When Do You Pay Annual Fee on Credit Card?
Most cards with an annual fee apply the fee to your balance the month you open the card. Then, they charge the fee as a lump sum that same month every year.
Which is the Best Credit Card Without an Annual Fee?
While there are countless cards without annual fees, the Wells Fargo Active Cash Card is especially interesting. You get 2% cash back on all purchases, and there’s a $200 bonus if you spend $1,000 within three months.
How Do People Get Trapped in Cycles of Credit Card Debt?
People get trapped in cycles of credit card debt when they overspend and then fail to pay off their balance. The remaining balance gets hit with interest – increasing the debts even further.
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