Annual fees may feel like you are paying to keep the card in your wallet but I show you why and how the fees are actually worth it.
Credit card annual fees, in the larger sense, are an amount you pay on a yearly basis to keep the card and its features active. They offer a range of options and features that can be very useful to many people. Honestly if the cards do not offer any benefit that you can use most of the time, just don’t get the card. Ahem, store credit cards. We all know someone who doesn’t want a card because it has an annual fee, however I wouldn’t judge the card based on its fee, rather the perks it offers. The offerings on some cards are so good you could be missing out on some cool savings and invaluable perks. Yup I said savings. The only contention with these cards is to justify the fee, you have to be using these features, some of these card savings are so good even if you use half of the available features you can make out like a bandit. So, let's get into it and see what exactly I’m going on about.
Chase Sapphire Reserve is a great example
I pay a lot of annual fees on my 12 credit cards, but each card offers unique perks and ends up either being really cheap to keep open or happens to pay for itself. Let’s look at one of my favorite cards: The Chase Sapphire Reserve. For starters, the annual fee is $450 every year, which most people would find almost laughable but in reality, this card pays me back in spades. The biggest savings I see from the card is the $300 annual travel credit I get. I can use this credit to towards anything that codes as travel such as air travel, any type of ground transportation (i.e. taxis and train) and tolls and parking.
If you spend $300 a year in any of these categories, you are already making out amazing. With that credit alone, this effectively reduces your annual fee down to $150. Now let’s add in some more savings. The card offers a $100 credit towards global entry, which makes getting global entry a no brainer as it ends up being free; you get a full subscription to priority pass, which gives you lounge access at many airports across the world, close to $400+ in value. Lastly, the points earning potential is great since you can easily redeem points for all types of travel related purchases like airfare, car rentals and hotels, or transfer them to travel partners to stretch your point redemptions even further, and we all know we want to travel more.
All this combined, it becomes a scenario where it is a stupid move to close the card given the value it offers me. To give you an idea of my travel redemptions, I was able to fly first class round trip to japan and back, and pay for 9 nights of a hotel stay all with points. This whole trip out-of-pocket would have cost me $40,000+. But I used close to 125k points to redeem for all that! So yes, the effective $125 annual fee (without factoring all the perks) makes up for way more than that value.
What I look for in a card
Here’s what I know about credit cards when it comes time to consider a card with annual fees. I have realized most cards without annual fees don’t provide a full host of benefits. Maybe a feature here or there that could be useful, such as no interest or some cash back benefit, but it’s not going to provide that great of a value. On the flip said, yes, there are cards that have annual fees that don’t provide a great value either, but more often than not this isn’t the case. Basically, I think cards that offer the best value have annual fees and tend to be geared towards accruing travel rewards points.
I’m not one to dabble much in cash back cards due to the low value it generates, and if I have to pay $95 a year for that benefit, I want to get much better value from it. In contrast, my Chase Sapphire card, for only a $55 difference, gave me a $40,000 round trip vacation. So no, I do not think “cash(back) is king” in the credit card world. You simply just won’t get the value. One thing I would advise against at all costs is to open a card with no interest that also has an annual fee, personally that doesn’t offer me anything. There are plenty of other products that can offer 0% interest with no annual fee. Or better yet, just don’t carry a balance, then every card becomes a zero-interest credit card. If you continue to carry a balance on a travel rewards card, you simply do not retain the value as you will be subject to pay the balance back with a large interest rate attached. Not fun.
Last bit of knowledge
When it comes down to it, you will hands down get better value and perks out of an annual fee-based card, again more often than not, than you will with one that doesn’t. That’s just the nature of the credit card world. The way we need to look at annual fees is not what how much money you throw to keep the card open, but how much value it brings to the table for you. Now you have to choose which perks and features, based on your spending, is valuable to you, and based upon that judge if the annual fee makes sense. It doesn’t help that there are so many credit card options out there, but do your research, read some reviews about the cards, and make a wise decision.
There are a lot of places where this information is readily available such as The Points Guy or Credit Karma. I think annual fees have been instilled to be a bad thing, and personally I thought the same until I started learning about credits cards and using them properly. But looking back on it now, I felt it my duty to share that a card that offers tremendous value for an annual fee shouldn’t scare people form signing up for them. They could turn out to be much more valuable then you expect them to be.