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You’re in the market for a new credit card. As you scroll through credit card roundups and pore over issuers’ application pages, you note cards with generous rewards programs and ample value-added perks. You add them to your shortlist, all but certain you’ll apply for one.
When you’re ready to make a final decision, you circle back to your shortlist and scrutinize each card more closely. That’s when you notice the pattern: They all charge an annual fee, some on the order of $400 or $500 — up to nearly $1,000.
You balk. Surely no credit card is worth a recurring annual charge when there’s no guarantee you can earn sufficient rewards or exercise enough benefits to offset the annual fee each year.
Every credit card applicant has been there. Most of the top travel rewards credit cards and small business credit cards charge annual fees, as do many secured credit cards and some premium cash rewards credit cards. Sooner or later, prospective cardholders all face a stark choice: opt for the fee-bearing card they really want — probably because it ranks among the best credit cards in their chosen category — or a less desirable alternative without an annual levy.
Does it ever make sense to choose the former? Actually, yes — and in a surprising range of circumstances.
When to Consider Paying for a Credit Card With an Annual Fee
So, when should you consider paying a credit card annual fee? Whether you’re eyeing a Visa, Mastercard, or American Express product, use these considerations to decide.
1. You’re Just Beginning Your Credit Journey
Credit card issuers look warily upon applicants with limited credit histories. Most reject their applications without a second thought.
Issuers willing to take chances on prospective cardholders with limited credit invariably keep those cardholders on tight leashes with low credit limits, high interest rates, and security deposit requirements.
Most credit cards marketed to applicants with limited credit also carry annual fees. Compared with premium cards’ annual fees, these levies aren’t excessive, often falling between $25 and $50. But for cardholders with modest budgets — and in proportion to initial credit limits as low as $200 or $300 — it’s still a lot of money.
New cardholders hoping to begin building credit or rebuild after an adverse event like bankruptcy may have no alternative. With a reasonable $35 annual fee, the OpenSky Secured Visa card is a popular choice for folks in this boat.
2. You Don’t Qualify for a No-Annual-Fee Card
What if you’ve established credit, but it’s not very good? You may not qualify for a mainline cash-back rewards credit card with no annual fee. You may not even qualify for a basic no-annual-fee credit card designed for cardholders with average credit, like the Capital One Platinum card.
If that’s the case, begin with a fee-bearing secured credit card. With responsible use, it won’t be an indefinite condition, as the best secured credit cards offer a clear upgrade path — that takes of months, not years — for users who make payments on time and utilize credit appropriately.
3. You Plan to Capitalize on a 0% APR Purchase Promotion
Don’t apply for an annual-fee credit card solely to take advantage of a 0% APR purchase promotion after account opening. The leading low-APR credit cards with long 0% APR promotions usually don’t charge annual fees.
Nor do no-annual-fee cash rewards credit cards like the Capital One Quicksilver credit card, which has a 15-month 0% APR purchase promotion that pairs with unlimited 1.5% cash back on every purchase every day.
That said, a long 0% APR promotion can serve as a tiebreaker when one or more additional fee-favoring conditions are present.
For instance, the Blue Cash Preferred® Card from American Express (read our American Express Blue Cash Preferred review) is a top choice for cardholders who spend heavily on gas and groceries. The 6% cash-back rate on grocery store spending, up to $6,000 in annual supermarket purchases, offsets the $95 annual fee several times over when fully exploited.
Blue Cash Preferred also has a 12-month 0% APR promotion on purchases. That comes in handy if you need to drop serious dough at the supermarket ahead of a big event, like Christmas or a graduation party, and don’t have the financial breathing room to pay off the entire purchase in a single month.
4. You Can Easily Clear Minimum Spending Requirements for Your Preferred Card’s Welcome Bonus
Many if not most annual-fee credit cards offer spending-based enticements to new cardholders — variously known as sign-up bonuses, early spend bonuses, welcome offers, and new cardmember offers, depending on the credit card company.
Some enticements are very generous. For example, the Chase Sapphire Preferred card’s sign-up bonus promises 80,000 bonus points when you spend at least $4,000 on eligible purchases within three months of opening your account. That’s a $1,000 value when redeemed for bookings in the Chase Ultimate Reward travel portal. Sapphire Preferred’s $95 annual fee pales in comparison.
If you can exceed the minimum spending requirements for an annual-fee credit card’s new cardholder enticement without upending your budget, eating the annual fee for the first year or two may be worth it to you.
5. You Travel Frequently & Aren’t Brand-Loyal
Most premium general-purpose travel rewards credit cards carry annual fees. Some clock in under $100, the relatively modest level of credit card offers like the Capital One Venture Rewards Credit Card and the Chase Sapphire Preferred Card. But others rise north of $400.
For frequent travelers who aren’t loyal to a particular airline or hospitality brand, that kind of annual outlay can be worth it. When evaluating annual-fee travel cards, look for benefits such as:
- Complimentary Airport Lounge Access. The most valuable airport lounge access deals aren’t limited to airline-branded lounges, like United Club or the Delta SkyMiles lounge. The Chase Sapphire Reserve® card (read our Chase Sapphire Reserve card review) and The Platinum Card® from American Express (read our Platinum Card from American Express review) both offer access to more than 1,000 airport lounges worldwide through complimentary memberships in Priority Pass Select and the Global Lounge Collection, respectively. With unsubsidized lounge admission typically running in the neighborhood of $60, the value adds up fast.
- Annual Travel Credit. For frequent travelers too busy to visit airport lounges regularly, the annual travel credit delivers the best combination of value and convenience. Cards with annual travel credits automatically credit eligible purchases until you reach the annual spending cap. For instance, Chase Sapphire Reserve’s $300 credit offsets your first $300 in eligible travel purchases each year, effectively reducing the $550 annual fee to $250.
- No Foreign Transaction Fees. Most premium credit cards waive foreign transaction fees. If you routinely travel outside the United States, don’t forget your card. You could reduce your net international spending by up to 3% — the standard foreign transaction fee on most cards.
- Global Entry Application Fee Credit. You only need to reapply for Global Entry every four or five years. But a $20 to $25 annualized subsidy still isn’t bad when combined with more substantial benefits like airport lounge access or waived foreign transaction fees.
- Car Rental Insurance. Most premium travel credit cards offer complimentary rental car insurance — usually collision and loss — when cardholders pay for the rental in full with the eligible card and decline the rental company’s offer of insurance. It only takes one unfortunate incident for this perk to pay off many times over. In the meantime, cardholders don’t have to worry about paying extra for rental company coverage that may or may not be adequate.
6. You Travel Frequently, Usually With the Same Brands
Brand-loyal travelers have different priorities than brand-agnostic travelers. Luckily for them, dozens of co-branded credit cards are happy to oblige.
The two most common types of co-branded cards are airline and hotel credit cards. Regardless of the annual fee, when choosing a co-branded card, pay attention to two things in particular:
- The size and reach of the brand as measured by property count for hotels and destinations served for airlines
- The number of partner brands, if any, that accept direct redemptions or transfers of the brand’s loyalty currency
Unless you already know you only plan to visit the same few destinations for the foreseeable future, those two metrics reveal how widely you can use your card and how likely you are to confine most of your travel spending to its ecosystem.
Beyond these, look for co-branded cards with the following perks.
- Complimentary Airport Lounge Access. Co-branded cards generally restrict complimentary airport lounge access to branded lounges, such as the Delta SkyMiles Lounge for Amex’s Delta SkyMiles credit cardholders. However, some participate in multibrand lounge networks.
- Complimentary Hotel Club Access. Though not as common, some hotel credit cards, like the World of Hyatt credit card, offer discounted or complimentary access to exclusive club or lounge areas at high-end properties. These facilities often feature complimentary food and beverages along with other perks of entry. And they frequently have stunning views.
- Automatic Loyalty Status. Many hotel credit cards offer complimentary loyalty status, usually at a lower or middle loyalty tier. Status benefits often include perks like higher base point earning rates, complimentary room upgrades, and free breakfast, though the specific benefits vary by brand and property. Without a card, you must stay with the hospitality family at least 10 nights per year — and sometimes many more — or meet high minimum spending thresholds to qualify for the same status, so this perk can be invaluable. Some luxe general-purpose travel cards offer automatic loyalty status as well. The Platinum Card® from American Express promises automatic Marriott Bonvoy Gold Elite status and automatic Hilton Honors Gold status.
- Accelerated Progress to Higher-Status Levels. Other co-branded cards accelerate cardholders’ progress toward status tiers. The American Express Delta Reserve card’s welcome offer includes a portion of Medallion qualification miles, the currency of Delta’s SkyMiles Medallion loyalty program, which they typically reserve for true road warriors.
- Complimentary Award Travel. Complimentary travel is a common feature of premium co-branded credit cards. Some hotel cards offer one or more free nights each year to cardholders in good standing, a perk that by itself can more than offset a sub-$100 annual fee. Many offer additional spending-based opportunities to earn a free night or flight awards.
7. You Can Spend Heavily Enough to Offset the Annual Fee With Rewards
Frequently, moderate to heavy spenders can easily offset the annual fee with rewards on purchases they commonly make.
As an example, Chase Sapphire Preferred cardholders who spend more than $3,800 on dining and travel combined each year earn enough rewards to offset the $95 annual fee.
But the lift becomes heavier as the annual fee increases. Assuming a 5% return on travel spending and not factoring in its airline fee credit, you’d need to charge at least $11,000 in travel to your American Express Platinum card each year to break even.
8. The Card Has Generous Benefits Aligned With Your Lifestyle & Spending Habits
This scenario usually overlaps with the preceding two, as these benefits are most often associated with premium co-branded and general-purpose travel credit cards. That doesn’t dent their potential value, though.
- Partner Currency Transfers at Favorable Transfer Ratios. For cardholders with multiple travel loyalty memberships, the potential benefit of this value is difficult to overstate. The best general-purpose travel credit cards, including the Chase Sapphire Reserve® and Chase Sapphire Preferred® Card, set point transfer ratios at 1-to-1 — that is, cardholders may convert 1 point of card loyalty currency to 1 point or mile of partner currency. Since partner currency is usually worth more than card currency, the value of which rarely exceeds $0.015 per point even when redeemed for the choicest statement credits, this is a fantastic way to boost rewards value without much effort.
- Airline Fee Credit. A general-purpose travel card benefit — most notably of The Platinum Card® from American Express — airline fee credits are enticing for brand-loyal frequent travelers. Platinum’s $200 annual airline fee credit offsets incidental fees, such as baggage fees, charged by one airline of your choice. It effectively reduces the Platinum card’s $550 annual fee to $350 when fully exploited.
- Hospitality Benefits. Premium co-branded and general-purpose cards alike frequently offer complimentary hospitality benefits — such as complimentary room upgrades and experiences — for guests of specific hospitality brands or collections. Amex Platinum’s Fine Hotels & Resorts benefits are worth an average of $550 per stay, according to American Express. Its Hotel Collection benefits include a complimentary $100 hotel credit to redeem for dining, spa, and resort charges on qualifying hotel stays.
- Brand-Specific Credits. Some travel cards offer credits against purchases made with specific brands. Amex Platinum’s Uber credit, worth up to $200 per year, is particularly generous. Multiple Amex credit cards offer $10 per month in credits against purchases with Seamless and GrubHub, two popular food-delivery apps. Multiple Chase travel and cash-back cards offer accelerated points or cash-back earnings on Lyft rides (through March 2022). And the Chase Sapphire Reserve® card offers up to $120 in DoorDash credits over two years (through 2021) plus a complimentary DoorDash DashPass subscription for a minimum of one year. These and similar promotions are more vulnerable to discontinuation than core benefits, so check with the issuer before applying.
- Excellent Rewards Bonus Categories. Some credit cards offer eye-popping rewards points bonuses in select spending categories, such as the American Express Blue Cash Preferred Card’s 6% rate of return on the first $6,000 in annual spending at U.S. supermarkets and 3% rate of return on all eligible spending at U.S. gas stations.
9. The Issuer Offers a Clear Downgrade Option
If you decide a year or two into card membership that you’re not getting your money’s worth from your annual fee card, it’s nice to have the option to downgrade your card to a no-annual-fee alternative without closing the account. Closing it can reduce your total available revolving credit and increase your credit-utilization ratio — possibly to the detriment of your credit score.
If it’s not clear whether your preferred card offers a downgrade path, ask the issuer. They probably have a downgrade policy, even if it’s not clearly communicated on their website.
Annual-fee credit cards almost always have more generous rewards programs and more valuable perks than comparable annual fee-free credit cards. The dichotomy between the generous fee-bearing Blue Cash Preferred® Card from American Express and the less generous fee-free Blue Cash Everyday® Card from American Express is just one example. Blue Cash Preferred earns double the rewards on grocery store spending and 50% more rewards on gas station spending.
If you’re able to capitalize on any of the scenarios described above to negate your fee-bearing card’s annual fee each year, that card is likely a superior alternative to any annual fee-free equivalent.
And that’s if you even have to pay the card’s annual fee each year. Your mileage may vary, but it’s an open secret that credit card issuers have the discretion to waive annual fees. The 10 or 15 minutes it takes to call your issuer and threaten to close your account can pay off handsomely.
Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.