Five situations when an annual fee card is worth it
September 11, 2019
You might be tempted to overlook credit cards that have annual fees. However, there are cases where the benefits that come with a particular card are worth it. For example, some credit cards have rewards structures that allow you to earn more than the amount you pay annually. Other cards carry great perks that you would otherwise need to pay for separately. The lense through which you view your card’s annual fee depends on how you can maximize the full value of that card.
Here are five scenarios where paying an annual fee works in your favor:
1. The card has a stellar rewards program
“It might be a good idea to get a card that has an annual fee if it has a stellar rewards programs,” says David Bakke, personal finance expert at Money Crashers. “For example, the American Express Blue Cash Preferred Card comes with a rewards program that features 6% cash back on groceries – capped at $6,000 annually. Plus, it has an unlimited 3% cash back on gas and 1% cash back on everything else.”
So what’s the catch? The card has a $95 annual fee. Bakke says keep it in perspective, though. “However, if you buy a lot of groceries and gas – and most of us do – this rewards program would far outweigh most others on the market even after you factor in the annual fee.”
2. The card is used for a balance transfer
Another scenario in which an annual fee might be worth it is when you’re doing a balance transfer to avoid paying interest. “If you find a card with a 0% APR for the first 18 months or more, and you have a large amount of debt you want to transfer, then paying an annual fee would also make sense since it would be offset by the interest savings,” Bakke explains.
However, he says you would need to pay off the balance in its entirely before the promo period expires. Otherwise, you wouldn’t have gained anything, and might end up worse than you started, since you would be paying interest and an annual fee.
3. The card helps you rebuild credit
If you’re trying to build or rebuild credit, Bakke says paying an annual fee might be worth it. “Also, [paying an annual fee] might not be an option, since your credit is bad,” he says. “However, through the responsible use of such a card, the cost of the annual fee will be outweighed immeasurably by the improvement in your credit score.”
In this scenario, the key is to make sure that you’re making timely payments and not maxing out the card.
4. The card is a brand card with exclusive perks
If you’re a brand loyalist, and always use the same hotel and airline, it might be worth it to pay the annual fee for a specific type of credit card. For example, if you get a United℠ Explorer Card from United Airlines, you can check your first bag for free, which the company says is a savings of up to $120 per round-trip. You also receive priority boarding, and the $95 annual fee is waived for the first year.
For hotels, The World of Hyatt Credit Card, which also has a $95 annual fee, provides cardholders one free night at a Hyatt hotel or resort every year. You can also get four bonus points for every $1 spent at Hyatt hotels.
5. The card has a low fee to begin with
If the card has a low fee to start, it might not hurt you, anyway. However, as Bakke points out, there is such a thing as paying too much for an annual fee.
“There are some cards on the market with an annual fee of $450, and some are even higher than that,” he says. “Those cards should be avoided because the only reason it would be worth it to pay that annual fee is if you’re particularly wealthy and do a ton of spending – among other financial actions – which pretty much don’t apply to most of us.”
The Chase Sapphire Reserve® has one of the highest annual fees on the market at $450. The Platinum Card from American Express is even steeper at $550 annually. However, some cardholders may still end up saving money with these cards. For example, the Chase Sapphire Reserve gives an annual $300 travel credit for travel purchased through the card, and after that, cardholders can earn 3x points on travel worldwide.
It pays to look below the surface. An annual fee can often be seen as the price consumers pay for having a rewards credit card. And for consumers trying to build or rebuild their credit, annual fees can be seen as a form of insurance. Either way, be sure to always weigh the pros and cons of an annual fee. Instances of the benefits outweighing the cost may happen more often than you think.