Updated: July 25, 2024
Updated: July 25, 2024
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Credit cards with annual fees are worth it if the benefits you receive outweigh what you pay for the card. Typically, cards with annual fees unlock a world of exclusive benefits and lucrative rewards. However, if you’re budget-conscious or an infrequent traveler, you probably don’t need such high-powered benefits and won’t be able to justify a card’s annual fee.
We’ll help you assess whether premium perks are worth the price or if a no-fee card better suits your spending habits.
Through a cost-benefit analysis, you can determine if credit cards with annual fees are worth it for your profile. If the rewards and benefits you receive outweigh the cost, the card is likely worth it.
For instance, a card that offers high cash back rates, particularly in categories where you spend frequently, can quickly offset the cost of an annual fee. After the first year, the Blue Cash Preferred® Card from American Express charges a $95 annual fee, but it also provides 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases, which could amount to $360 in cash back.
Ultimately, the math should guide your decision. Calculate your potential rewards earnings and compare them to the annual fee to determine if a card is financially beneficial for you. The card is probably not worth it if your yearly spending doesn’t generate enough rewards or cash back to offset the annual fee.
Credit cards with annual fees can be a wise investment when the perks align with your spending habits and lifestyle.
You’re building credit
A card with an annual fee can be a strategic choice when building credit. Responsible use of such a card can contribute positively to your credit history, allowing you to qualify for no-fee cards in the future.
The Capital One QuicksilverOne Cash Rewards card charges a $39 annual fee, but you can qualify for this card with a fair credit score. Helpfully, if you spend more than $2,600 on the QuicksilverOne, the unlimited 1.5% cash back will offset the annual fee.
You want higher rewards (or a large sign-up bonus)
The rewards program and sign-up bonuses are pivotal factors when you're eyeing a credit card with an annual fee. These rewards can be especially valuable if they align with your spending habits and travel plans.
The Blue Cash Preferred® Card from American Express offers 6% cash back on groceries and streaming and 3% on gas and travel. The high cash back on everyday categories can quickly offset its $95 annual fee if you're a frequent spender.
Similarly, the Capital One Venture Rewards card entices travelers with 5 miles per dollar on hotels and rental cars and a 75,000 miles welcome bonus (worth $750). Despite its $95 annual fee, the card's sizable welcome bonus and travel benefits can significantly outweigh its cost, provided that it matches your travel habits.
Remember to assess the credit cards you own yearly. You only get rewards like a welcome bonus once, but you'll need to pay the annual fee every year. Starting the second year, you’ll weigh the card’s merits solely based on its rewards and perks.
You're looking for travel perks
For avid travelers, credit cards with annual fees can unlock benefits far exceeding the cost. These cards often come with generous travel credits, airport lounge access and enhanced point earnings on travel expenses.
The Chase Sapphire Reserve card offers access to airport lounges, travel insurance, travel credits and reimbursement and several other perks. Combined with its up to 10X points on travel purchases and 60,000 points welcome bonus (worth $900), this card’s benefits can outweigh its considerable $550 annual fee for the right user.
Choosing a credit card without an annual fee makes sense when the math simply doesn't add up in favor of fee-based cards.
You can't offset annual fees through rewards
Credit cards with annual fees often come with the promise of higher rewards, but these benefits must surpass the cost to be worthwhile. If your spending habits or reward redemption patterns do not align with the card's offerings, the annual fee may not be justified.
For instance, a card with a $95 annual fee would require you to spend at least $3,167 at a 3% cash back rate to break even. If your spending isn't enough to justify a credit card with an annual fee, consider the Blue Cash Everyday® Card from American Express, which offers high rewards on groceries and gas but without an annual fee.
You don't travel often
If your lifestyle doesn't include frequent travel, a credit card with a high annual fee may not offer you the best value. Many premium credit cards justify their fees with travel perks like lounge access, free checked bags or hotel upgrades, which are irrelevant if you're not a regular traveler.
You prefer no-fuss rewards
If you value straightforward rewards without the hassle of calculating whether you're truly coming out ahead after an annual fee, a no-annual-fee card may be your best bet. The Wells Fargo Active Cash® card provides 2% cash back on all purchases —it’s a great choice if you just want consistent returns from your purchases.
Many credit card issuers offer introductory promotions that waive the annual fee for the first year, giving you a chance to evaluate the card's benefits cost-free.
If you're a long-standing customer with a reasonable spending and payment history, you might even successfully negotiate a waived or reduced annual fee with your issuer. Although it's not a guaranteed outcome, having that conversation can still be worth your time. Even if the issuer rejects your request, it may recommend a similar, no-fee card and streamline your application.
Another strategy is to downgrade your credit card after the first year. Simply claim the initial welcome bonus and then switch to a card with no annual fee. Remember to review your card's benefits to ensure you're getting more value than the cost of its annual fee.
When assessing whether a credit card with an annual fee is right for you, consider the tangible benefits against the cost. Cards with substantial rewards and perks can often justify their fees for frequent travelers or big spenders. For instance, a card offering a high effective reward rate and additional perks like airport lounge access may provide value well beyond its annual fee.
Conversely, a no-fee card might be the better choice if your spending is modest or you prefer simplicity. So, if you have a card in mind, review its offerings and see how it’ll benefit you. It can also be helpful to compare a card with an annual fee and a similar card with a $0 annual fee. For example, the popular Blue Cash Preferred® card has a no-annual-fee version, the Blue Cash Everyday® card.
Ultimately, it's about matching a card's features to your spending patterns and lifestyle needs.
"I make at least one trip a year with my family. The closest airport to us is a United hub, so we are loyal to the airline. I used to have a United Explorer card, and I had it for years. It gave me 2X miles on United flights, which was an easy win and didn't take much effort. We also got free checked bags, which was useful for our family with small kids. These benefits made the United Explorer card's annual fee worth it for me." — Doug Milnes, Head of Credit Cards at MoneyGeek
Still asking yourself if credit cards with annual fees are worth it? Here are answers to some of the most frequently asked questions about annual fees on credit cards to help you make an informed decision.
Credit cards charge annual fees to offset the cost of the benefits and rewards they offer, such as travel perks, cash back or sign-up bonuses.
Annual fees are typically charged on the anniversary date of your account opening and will appear on your statement.
No, not all credit cards have annual fees. Cards like Blue Cash Everyday®, Capital One SavorOne Cash Rewards and Wells Fargo Active Cash® offer rewards and benefits without an annual fee.
Some issuers may waive the annual fee as a promotion or for valued customers. It's worth asking your issuer about fee waiver options.
Whether a card with an annual fee is better depends on whether you can leverage the card's benefits to offset the cost or if the card’s perks outweigh the annual fee.
Compare the value of the rewards and benefits you'll use against the cost of the annual fee. If you have the Blue Cash Preferred® card and spend at least $1,600 per year on groceries, you can easily break even from its annual fee. All the rewards you earn after that can be considered savings.
For rates and fees of the Blue Cash Preferred® Card From American Express, please click here.
For rates and fees of the Blue Cash Everyday® Card From American Express, please click here.
About Doug Milnes, CFA
Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.
Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.
