- Travel rewards and cash back rewards credit cards sometimes charge annual fees, but those fees can be worth it.
- If you’re wondering how to decide if a credit card annual fee is worth it, it comes down to the numbers: Do the maths to compare rewards, benefits, credits, and other perks to decide if a card makes sense for your needs.
- Cards like the Chase Sapphire Reserve ($US450 a year), the Chase Sapphire Preferred Card ($US95 a year), and the Blue Cash Preferred® Card from American Express ($US95 a year) can be worth the fees, depending on how you use them.
- Ask yourself: Do you get regular rewards for your purchases? Will you take advantage of the card’s benefits? Will you get a big signup or welcome bonus? If you don’t use take full advantage, the fee might not be worth it.
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My first credit cards were basic student and cash back cards with no annual fee. I spent the first few years of my career completely averse to cards bearing an annual charge. I could spend money and get rewarded for free, I supposed, so why should I pay money to be able to spend money?
It turns out that credit cards do a lot more than help you spend money. Unlike a debit card, credit cards come with additional layers of fraud protection. As you move up the tiers in credit card annual fees, you’ll find better and better rewards and benefits. Use these questions to decide if the annual fee is worthwhile.
How to decide if a credit card annual fee is worth it
1. Do you get regular purchase rewards?
The most important part of your rewards credit card is the rewards. Cash back is easy to value, while travel rewards take a bit more maths. With many rewards cards, you’ll earn more in rewards each year than the annual fee.
For example, the $US95-per-year American Express Blue Cash Preferred offers up to 6% back on some bonus purchases. At the 6% rate, you have to spend just $US1,583.33 per year to break even on the fee. Anything above that is profit back in your pocket.
For hotel, airline, and credit card program miles and points rewards, points may be worth more or less than one cent each.The Points Guy keeps an updated list of values each month that works as a great reference point when choosing a new card.
2. Will you take advantage of the benefits?
One of my favourite cards is the Chase Sapphire Reserve, which charges a $US450 annual fee. One benefit included with this premium card is Priority Pass Select lounge membership. The card gets me into more than 1,200 lounges at airports around the world. For long layovers and international trips, this benefit can make your trip a lot more comfortable and could be valued at around $US30 per person per visit.
Free checked bags, priority boarding, rental car insurance, and trip interruption insurance are all great benefits that come with their own value if used. When renting a car, you can save around $US10 to $US20 per day using a card’s rental insurance instead of what the rental company offers you.
Purchase protection, extended warranties, price change protection, and return protection are also great benefits to look for when picking a new card with an annual fee. If you take advantage, any of these benefits could be worth more than an annual fee.
3. Will you get a sign-up or welcome bonus?
The Chase Sapphire Preferred Card currently offers a larger-than-usual 60,000-point signup bonus after spending $US4,000 on purchases in the first three months. When redeemed through Chase Ultimate Rewards, those points are worth 1.25 cents each, or $US750 toward travel.
The card charges a $US95 annual fee, so the sign-up bonus is worth more than seven years of fees right away when getting started. As long as the card remains worthwhile in the long-term, signing up to get a bigger starting value from a bonus is a great credit card strategy.
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- How to build credit with a credit card
- How to cancel a credit card you no longer want
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- The best cash-back credit cards
- Southwest credit card review
- Best credit card reward programs
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