So I was having a conversation with some friends the other day, and the topic of credit cards came up. One of my friends made the statement, “I can’t understand why it’s ever worth paying an annual fee on a credit card!” My response to her was that it’s less about the cost, but instead, the value that you get from a card.
Since this is a common question that we receive, I decided to do a video/post on it. I know many people starting the points hobby and are skeptical of whether they would benefit from paying an annual fee. I want to share why I pay the annual fee on certain credit cards. These are credit cards with fees that I find extremely useful.
Reasons for paying a credit card annual fee
1. Sign-up bonuses:
Probably the biggest reason to get a card with an annual fee is to earn a large sign-up bonus. Card offers can sometimes be worth over $1000 if redeemed properly. Some examples of large sign-up bonuses in the past are the American Express Platinum and the Chase Sapphire Reserve. Even in July 2017, Chase is offering an 80,000 point bonus on its Ink Business Preferred card and Citi is offering a 75,000 point bonus on its Prestige card.
2. No foreign transaction fees:
Most premium cards with annual fees do not have a foreign transaction fee. This prevents you from getting charged extra for using your credit card while traveling abroad.
3. Bonus categories / earning rates:
Cards with annual fees often reward you bonus points in certain categories.
I won’t go into all the perks available, as they differ with every card. However, here’s a quick list of some popular perks that you’ll often find on these cards.
- Airport lounge access
- Global Entry & TSA Pre-check application reimbursement
- Primary car rental insurance & coverage
- Extended warranty for purchases
- Damage & theft protection
- Trip cancellation & delay protection
- Lost & delayed baggage insurance
- Roadside assistance
- Hotel/airline status upgrades
- Emergency evacuation & transportation
5. Special offers:
Some cards give special offers, discounts, or memberships to their users. For example, American Express offers some of its cardmembers access to ShopRunner, which gives you free two-day shipping on many shopping sites. It’s like having Amazon Prime for other retail sites.
6. Annual bonuses:
This is a huge reason to pay an annual fee. Many cards with annual fees give you a bonus every year. It can be a travel credit, free hotel night, or points, depending on the card.
Cards with annual fees that I keep
As of July 2017, the cards that I use with annual fees include:
Chase Sapphire Reserve:
This is my go-to card for travel and dining expenses. Though the annual fee is $450, I feel like I am able to squeeze a lot of value out of the card. If you factor in the annual $300 travel credit, the annual fee is more like $150, which only $55 more than the Sapphire Preferred.
Chase IHG Rewards Club Select:
This is a card that I don’t actually use, but still pay the annual fee. Why? Because the annual fee is only $49 and it includes an increase in status level AND an annual free night at an IHG brand hotel, such as the Intercontinental, Hotel Indigo, Crowne Plaza, and Holiday Inn. I’ve been able to use the free night every year for a luxurious hotel stay. For me, it’s completely worth paying the annual fee on this card. I also set a small reoccurring charge on it every few months to keep the account active.
Chase Hyatt Rewards:
The Hyatt card has a slightly higher annual fee, but like the IHG card, gives me a free night and increased status. I love the Hyatt portfolio of hotels, especially the Andaz brand. Paying the annual fee of $75 makes a lot of sense since a room is generally double or triple that amount.
Chase United MileagePlus Explorer:
This card has a $95 annual fee. This is a card that I have contemplated canceling, especially since I have lounge access through my Sapphire Reserve and don’t usually use the free checked bags feature. I’ve decided to keep it since I usually end up taking advantage of the United lounge passes. Also, I get access to additional reward booking availability through United with this card, which makes it easier to book a reward flight.
Club Carlson Premier Rewards:
The Club Carlson card is one that I am contemplating whether I want to keep. I get 40,000 points each year for keeping the card, but I haven’t had many opportunities to redeem the points. We’re hoping to do a Europe trip later this year, so I’m hoping to use the points that I’ve accumulated over the years. But I’m still on the fence on whether I want to keep this card.
Additional tips and considerations
Here are some tips for managing cards with annual fees.
1. Set a reminder to reevaluate your card membership every year:
It’s important to review whether you are getting value from your cards. Considering that life changes all the time, it’s a good practice to reflect on your current and future spending. I suggest making a decision on whether you want to keep your card around month ten of your opening anniversary. You want to make the decision before the annual fee is charged to your account. Otherwise, it can be difficult to get a refund on the fee.
2. Downgrade your card if necessary:
If you decide that you’re not benefiting from your card, then consider downgrading to the free version of your card. I prefer downgrading than closing an account since closing tends to have a negative impact on you credit score. For example, when I got the Chase Sapphire Reserve Card, it was clear that it was going to replace my Sapphire Preferred card. Instead of canceling the Sapphire Preferred, I converted it into the Freedom Unlimited card, since it was one of the cards that I wanted to get. I gave up the opening bonus on the Freedom Unlimited card by choosing to convert my Sapphire Preferred (rather than opening a new account). However, the opening bonus for the Freedom Unlimited was not impressive and I planned to keep the card for the long term. Plus, I avoided the additional credit inquiry, which also means that the card did not apply to Chase’s 5/24 rule.
3. Plan your card strategy:
Like tip number one, think about your long-term travel goals. Do you plan to travel in the future? If so, what types of points are you looking to build? Are there certain programs that might be better suited to meet your goals?
Also, think about your future daily spend. Are you planning to eat out as much, or maybe you anticipate more grocery spend? Will you be buying a house or car? All these factors should shape your card strategy.
4. Time bonus offers:
This is important! Certain cards have seasonal bonuses, so it’s worthwhile researching whether it’s a good time to apply for a certain card. For example, American Express typically increases the opening bonus for the Starwood Preferred Guest card every summer. If you’re interested in the card, it might be worth waiting for the increased offer.
What are your thoughts on paying the annual fee on credit cards? Please share them in the comment section below.
- How to Earn Lucrative Sign-Up Bonuses Without Paying Annual Fees Out-of-Pocket” (Million Mile Secrets)