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Some of the best credit cards on the market today offer perks that can easily be worth $1,000 or more every year, yet these top-tier cards also charge an annual fee. In the meantime, many of the best cash back cards on the market today don't charge an annual fee at all.
This may leave you with an important question: Is paying the annual fee on a credit card actually worth it?
At the end of the day, an annual fee may – or may not – be worth it to you. For most people, it all depends on whether the benefits the credit card offers are worth more than the fee you're asked to pay, and whether the rewards you earn for spending are valuable to you.
If you're looking for a new credit card and wondering whether a card with an annual fee could leave you better off, you're in the right place. Let's dive into some scenarios where credit card fees are well worth paying, as well as situations where you should go with a no annual fee credit card instead.
When does It make sense to own a card with an annual fee?
Scenario #1: You want to earn a big sign-up bonus
Many of the best rewards and travel credit cards offer generous sign-up bonuses for people who can meet a minimum spending requirement within the first few months. As an example, with the popular card_name you can bonus_miles_full.
While a annual_fees annual fee applies, the fact the bonus is worth $1,000 toward travel when you redeem through Chase Ultimate Rewards. The fact is, most highly-rated credit cards with exceptional welcome offers charge annual fees, so you should plan on paying one if you hope to earn a massive sign-up bonus this year.
Scenario #2: You're a Frequent Flyer
If you're a frequent flyer, there are even more reasons to opt for a credit card with an annual fee. That's because many of the best travel credit cards offer the chance for expedited airport security for departures and arrivals back in the United States, plus benefits like free checked bags, priority boarding on your plane, priority check-in and more.
As just one example, the card_name has new cardholders bonus_miles_full. The card has a annual_fees annual fee, yet it also comes with perks like two United Club passes per year, a free checked bag for the cardholder and one companion, up to $100 toward Global Entry or TSA PreCheck membership, 25% back on in-flight purchases, the chance to earn Premier qualifying points toward elite status with United and more.
Obviously, this card would be best for people who fly with United and Star Alliance partner airlines all the time, but there are other airline cards to consider if you typically fly with American, Delta, Southwest or other airlines instead.
Scenario #3: You want luxury travel perks
If you want the best luxury travel perks out there today, you'll want to look at flexible cards that earn points in programs like American Express Membership Rewards, Capital One Travel, Chase Ultimate Rewards, and Citi ThankYou. However, you'll need to mentally prepare to pay annual fees of $395 to $695 if you want a card with the best selection of benefits. Annual fees that high might seem exorbitant, but they can be well worth paying when you break down the value of the benefits they include.
As an example, you could consider the card_name, which comes with a annual_fees annual fee. While the fee may seem high, cardholders bonus_miles_full. In addition to earning rewards on regular spending, perks include a $300 annual travel credit good toward travel purchases made with Capital One, a $100 credit toward Global Entry or TSA PreCheck membership, access to Capital One airport lounges (with a normal retail value of $65 per visit), and a Priority Pass Select membership that has a retail value of $469.
Cardholders also get 10,000 bonus miles each year they renew their card, which more than makes up for the annual_fees annual fee when you add in the $300 annual travel credit offered each year. When you consider the other luxury travel perks the card_name offers, it's easy to see how the annual fee is worth it for people who can use the benefits.
Other luxury travel credit cards to check out include the card_name (Terms apply) and the card_name, to name just two.
Scenario #4: You're a big spender
The more you spend on your credit card, the more rewards you can earn month after month. In the meantime, credit cards with annual fees tend to offer higher earning rates in bonus categories and on other purchases you make.
Many credit card companies even offer similar cards with and without annual fees in order to give consumers more options. As an example, Capital One offers the Capital One Savor Rewards Credit Card with a $95 annual fee, along with the comparable card_name with annual_fees annual fee.
The chart below highlights how these cards compare in terms of their earning rates and fees.
|Capital One Savor Rewards Credit Card||card_name|
Capital One Savor Rewards Credit Card$95
Capital One Savor Rewards Credit CardEarn a $300 cash bonus when you spend $3,000 on purchases within three months of account opening
Capital One Savor Rewards Credit Card4% cashback on dining, entertainment and popular streaming services; 3% cash back at grocery stores; 1% back on other purchases
card_name3% cash back on dining, entertainment and popular streaming services; 3% back at grocery stores(excluding superstores like Walmart® and Target®); 1% back on other purchases
If you're a big spender who forks over $1,000 on dining and entertainment each month along with $1,000 on groceries and another $2,000 on regular purchases, the Capital One Savor Rewards Credit Card would help you earn $90 per month in rewards and $1,380 in rewards the first year including the sign-up bonus. However, the $95 annual fee would apply, reducing your first year gains to $1,285.
Now imagine you're not a big spender and you only use your card for a few expenses here and there. In that case, the card_name with annual_fees annual fee could leave you ahead since you earn almost as much in rewards without having to pay $95 per year for the privilege.
Scenario #5: You want maximum rewards flexibility
There are all kinds of rewards credit cards that don't require an annual fee, but most limit your redemption options to basic choices like cash back, gift cards and merchandise. In the meantime, credit cards with annual fees tend to offer the most flexibility over all.
One of the best examples includes travel credit cards from Chase, which let you rack up highly-valuable points in the Chase Ultimate Rewards program. With the card_name, for example, your points can be redeemed in the following ways:
- Redeem points for cash back or statement credits at a rate of one cent per point
- Use points for gift cards at one cent per point or better
- Use rewards for purchases through PayPal or Amazon.com and get just under one cent per point ($.08 cents) in value
- Points are worth 50% more when redeemed for airfare, hotels, rental cars and other travel through Chase
- Transfer points to Chase airline and hotel partners like British Airways, Southwest Rapid Rewards, United MileagePlus, Marriott Bonvoy and World of Hyatt
Scenario #6: You need to build credit
In this final scenario, it can make sense to pay an annual fee for a credit card if you are building credit from scratch or trying to repair credit mistakes you have made in the past. While several secured credit cards come with no annual fee required, the fact remains that many credit cards for bad credit or credit-building do charge an annual fee to get started.
In addition to annual fees, secured credit cards that build credit always require you to put down a cash deposit as collateral. This type of deposit is fully refundable when you close your account or upgrade in good standing, but you still need to come up with a minimum of $49 to $200 to start building credit with a secured credit card.
Why you might not want to pay annual fees
Scenario #1: Earning cash back is fine with you
If you mostly want to earn cash back or gift cards and you don't really care about fancier redemption options, a credit card with no annual fee is probably just fine. That said, you should still pick a card that lets you earn more rewards in categories you happen to spend the most in.
If you are comparing the best credit cards for groceries, for example, you'll want a no-annual-fee card with bonus rewards in this category like the card_name or the card_name. If you commute to work and you want to save on gas with credit cards, on the other hand, consider no-annual-fee cash back card like the card_name.
Scenario #2: You rarely travel
Many of the most generous credit card perks available today pertain to travel, yet they're mostly offered through credit cards that charge an annual fee each year.
With that in mind, you can have your pick of cards without an annual fee if you rarely travel and perks like free checked bags and airport lounge membership don't mean anything to you.
Scenario #3: You Want Basic Benefits
While cards with no annual fee don't come with over-the-top perks, they still offer benefits you can use. For example, the no annual fee Chase Freedom Flex℠ Credit Card comes with built-in benefits like purchase protection against damage or theft and extended warranties on eligible items that come with a manufacturer's warranty.
Cardholders also get cell phone protection worth up to $800 per claim and $1,000 per year (minus a $50 deductible), trip cancellation and interruption insurance worth up to $1,500 per person and $6,000 per covered trip, travel and emergency assistance services and several other perks.
Scenario #4: Your regular spending is low
If you don't spend a lot each month, it's unlikely you would earn enough in rewards to justify paying an annual fee. And really, you should probably just pick a cash back credit card that offers the highest flat-rate of rewards you can find.
The card_nameis a good option if you don't spend a lot since it comes with no annual fee and you earn 2% cash back for each dollar you spend — 1% when you make a purchase and another 1% when you pay it off.
Scenario #5: You need to consolidate debt
Also know that you don't need to pay an annual fee if you're looking for a balance transfer card that lets you pay down debt at 0% APR for a limited time. That's because the best cards in this category don't charge one.
For example, consider the card_name if you're trying to consolidate and pay down debt. In addition to having a annual_fees annual fee, this card gives you balance_transfer_intro_apr,balance_transfer_intro_duration, as well as intro_apr_rate,intro_apr_duration. A regular variable APR of reg_apr,reg_apr_type applies after both introductory offers.
Which types of cards have annual fees
Now that we've established which types of credit cards typically do not charge an annual fee (i.e. cash back credit cards and balance transfer cards), you're probably wondering which ones do. Here's a rundown of card types that typically charge annual fees in exchange for a higher rewards rate and more perks.
- Airline credit cards: Airline credit cards that charge an annual fee tend to come with valuable benefits like free checked baggage, priority boarding and discounts on in-flight purchases.
- Hotel credit cards: Some hotels credit cards also charge annual fees, in which case they tend to offer annual travel credits, automatic elite status and other perks.
- Flexible travel credit cards: Credit cards that let you transfer points to airline and hotel partners almost always charge an annual fee, and they usually come with other perks that add even more value.
- Luxury credit cards: If you want premium travel benefits like elite status, annual travel credits, broad airport lounge access and expedited airport security, plan on paying the annual fee for one of the top travel credit cards.
How to waive a credit card's annual fee
There are only a few scenarios where you can get the annual fee waived for a credit card, and these only work some of the time. For example, it's possible your card issuer will waive the annual fee on your card if you call them and inquire, and if you threaten to cancel your account if they refuse.
Also note that military members get the annual fee waived on many credit cards automatically thanks to protections built into the Military Lending Act (MLA) and the Servicemembers Civil Relief Act (SCRA). This includes some premium cards with annual fees of $550 or higher.
Are credit card annual fees worth it?
Before you can decide whether paying a credit card's annual fee is worth it, you should consider your own personal spending habits and which perks and benefits you want the most. If you use your card for a lot of purchases each month and you want to maximize rewards, there's a good chance paying an annual fee is worth it. The same is true if you want to access premium travel benefits that can make every trip you take more comfortable and less stressful overall.
Fortunately, there are plenty of credit cards with no annual fee for everyone else to choose from. At the end of the day, paying an annual fee may or may not leave you ahead, and only you can do the math and decide.
For rates and fees of the card_name, please visit this URL.
Frequently asked questions (FAQs)
Can my credit card annual fee get refunded if I ask them to?
If you decide to cancel your credit card right after the annual fee is charged to your account, you can call your card issuer to cancel and ask for a refund. In most cases, they will refund the full annual fee amount or a prorated amount based on your cancellation date.
How can I get out of paying my credit card annual fee?
To get out of paying the annual fee on a credit card, call your card issuer to see if you can downgrade to a similar card they offer with no annual fee. You can also cancel your card and apply for a new one that doesn't have any regular fees.
Does canceling a credit card with an annual fee hurt your credit?
Canceling a credit card can hurt your credit in several ways. First off, canceling a card can lower the amount of available credit you have, thus boosting your credit utilization rate overnight. Second, closing an account can shorten the average length of your credit history.
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