When Is a Credit Card Annual Fee Worth It? | Credit Cards
Key Takeaways
- A credit card’s annual fee may be a deal breaker for many, but the benefits and rewards often outweigh the cost.
- But if you tend to carry a balance or your spending doesn’t line up with the rewards, you may want to avoid a card with an annual fee.
- You can decide if a credit card’s annual fee is worth it by considering your financial situation, spending habits and how well you’ll maximize the card’s rewards.
Avoiding a credit card annual fee is an understandable desire. But, as with most things in life, there is no hard-and-fast best choice here.
Before you swear off credit card annual fees for all of eternity, let’s take a look at why some credit cards charge these fees in the first place. After you see what annual fees cover, you might change your mind.
What Is an Annual Fee?
The annual fee is like a cover charge you pay to get into a bar to enjoy the live entertainment. The fee might give you access to better-than-average rewards, perks and benefits.
The credit card might also come with a dazzling sign-up bonus. All of these rewards and bonuses are expensive, so credit card issuers charge annual fees to help recoup some of this expense.
You’ll find your card’s fee listed in the “Rates and Fees” box (sometimes, you’ll see it called “Pricing and Terms” or another variation). This information is usually featured or linked to on the credit card’s page on the issuer’s website.
The amount of the fee varies by issuer and by credit card. Annual fees on credit cards can range from below $50 to nearly $900. A few credit cards – the elite of the elite – have annual fees in the thousands.
But most of us don’t need to worry about those elite cards. If you have a great credit score, it’s easy to find an excellent rewards credit card that comes with a reasonable annual fee.
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Why Do Credit Cards Have Annual Fees?
A rewards credit card, such as a cash back card, that comes with no annual fee can still offer you great savings on purchases. But cards with annual fees typically kick the rewards up a notch.
For instance, a credit card that offers 3% cash back on groceries sounds pretty good, right? But add a reasonable annual fee to the mix, and maybe you’d get 6% cash back on groceries, plus other rewards and perks.
With travel rewards and airline-branded cards, the benefits can be quite useful. They could include a credit for certain airline incidental fees or checked bag fees.
You could also get intangible benefits, such as priority boarding. These benefits are kind of personal, and only you can decide what’s worth paying for.
When Is an Annual Fee Worth It?
An annual fee can be worth it if the value you’ll get from its benefits (tangible or intangible) outweighs the cost. This can be true if:
- You’re trying to rebuild credit. Credit cards that target those with bad credit, including secured credit cards, sometimes charge annual fees. The annual fee for these cards helps reduce the financial risk for the issuer. If you’re trying to boost your score, then a small annual fee can be worth it. Be sure to review the card’s full terms, try to make all payments on time and keep your balance low.
- You want to maximize your credit card rewards. In this case, you need to do the math and make sure your rewards exceed the cost of the annual fee. Review your budget so you can identify what type of rewards would help you save money. If you choose a credit card that offers the type of rewards you need, you might come out way ahead.
When Is an Annual Fee Not Worth It?
Sometimes, the math just won’t work out in favor of an annual fee. This can be true if:
- You tend to carry a balance. Don’t get a credit card with an annual fee if you think you’ll carry a balance. If you do, the cost of the credit card might very well outweigh the rewards.
- Your spending doesn’t line up with rewards. If the card offers great rewards on airline travel, but you mostly take road trips, it won’t be a good fit. Instead, you could look for a card with strong rewards on gas or EV charging.
- You won’t make use of the card’s benefits. Some cards come with a long list of statement credits, retailer discounts, travel perks and other fringe benefits. If you don’t want to put in the work it takes to optimize a card’s benefits package, the annual fee may not be worth it.
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Is It Possible to Get a Credit Card’s Annual Fee Waived?
If you’ve got a great credit score and a good payment history, it can be possible to get your annual fee waived. Call customer service and ask whether the annual fee can be waived. If you get denied, don’t give up. Ask for the retention department.
It might work outright, but you might receive an alternative offer for a statement credit or extra rewards. If the enhanced rewards are significant enough to offset most of the annual fee, consider that a win. And if you plan to use the card a great deal, point that out. This lets the issuer know that it’ll still be making money from all of your transactions.
