I paid $2,624 in annual fees on my credit cards in 2019. To the fee-averse consumer, that number is mind-numbing, but it’s not even the most I’ve seen among credit card rewards enthusiasts. In a recent survey I did in a travel Facebook group, I found people who spend upwards of $3,000—and even $4,000—on credit card annual fees every year, mostly on travel rewards credit cards.
But when it comes to travel credit cards, it’s not so much about the annual fee as it is about the benefits you get as a cardholder, and whether those benefits are enough to cover the yearly cost. That’s even more important during the coronavirus pandemic when travel has dropped and budgets have tightened by quite a bit.
It’s important to note that my freelance writing business hasn’t suffered significantly in 2020, so I haven’t had to get rid of any credit cards to cut costs. If you’re struggling to cover basic expenses, no credit card benefit is worth sacrificing your financial security. But if you don’t have to worry about cutting costs right now, here’s how to make sure paying for the privilege of having a credit card is worth it.
How To Determine If an Annual Fee Is Worth It
A lot of credit cards charge annual fees, but not all of them provide enough benefits to make it worth the cost. If you’re thinking about getting a new credit card, here’s how to tell if the perks are enough.
Can You Earn Enough in Rewards Alone?
In general, I focus more on perks than rewards to determine if a card is worth its annual fee. But some annual-fee cards—like the Blue Cash Preferred® Card from American Express—do offer enough value in rewards alone to outpace the yearly cardmember costs.
The Blue Cash Preferred card offers 6% cash back on the first $6,000 spent at U.S. supermarkets per calendar year, among other rewards rates. If you max out that bonus rate, you’ll earn $360 in cash back, almost four times the card’s $95 annual fee. Even if I only use the card on supermarket spending, the Blue Cash Preferred is worth it.
That’s particularly valuable during the pandemic when people are more likely to cook at home than eat out. According to a survey by Clutch, groceries have become the top expense for 40% of millennials in the era of shutdowns and social distancing.
Also, some other credit card issuers are offering temporary bonus rewards on certain expenses, such as online shopping, groceries, gas, dining and more. Check with your card issuer to determine if it’s running any promotions you can use to get more value.
Does the Credit Card Offer an Anniversary Bonus?
A lot of travel credit cards offer some kind of bonus when you renew your account and pay the annual fee. With most of my hotel credit cards, for instance, I get a free night’s stay that’s worth more than what I pay every year to keep the card. I don’t even have to earn rewards to make it worth it.
Some other cards, such as the Southwest Rapid Rewards credit cards, offer points bonuses that don’t quite cover the cost of the fee, but help reduce the sting a bit.
One key thing to consider is whether the bonus will still be available after the pandemic ends. For example, many hotel rewards programs have extended the expiration date on their free anniversary nights, so I’m not missing out. Airlines have also extended expiration dates on their points and miles to alleviate some stress for people who aren’t traveling right now.
Does the Credit Card Offer Statement Credits?
Some travel credit cards offer annual statement credits that reduce the effective cost of the card or neutralize it all together. For example, my Bank of America® Premium Rewards® credit card credit card charges a $95 annual fee and offers a $100 annual airline incidental fee credit, which you can use to cover seat upgrades, baggage fees, in-flight services and airline lounge fees. I maxed out this complimentary credit on a single trip earlier this year.
Another example is the The Platinum Card® from American Express. It charges an eye-watering $550 annual fee, but you’ll also get a $200 annual airline incidental fee credit, up to $200 in Uber credits annually (I use mine mostly for Uber Eats orders) and a $100 credit each year on Saks Fifth Avenue purchases.
One significant move credit card issuers have made during the pandemic is offering new statement credits and adjusting others. For example, the Chase Sapphire Reserve® is allowing people to use their annual travel credit to cover gas and grocery purchases. And the Platinum Card from American Express added monthly credits for streaming and cell phone expenses through the end of 2020. Check with your card issuer to find out if there’s anything new you can take advantage of right now to maintain value.
Are There Qualitative Perks To Consider?
With some credit card benefits, it’s tough to attach a monetary value. For example, some airport lounge networks may charge an annual membership fee, but I wouldn’t pay it if I didn’t have a few credit cards that give me complimentary access. So, rather than trying to determine the cash value of that benefits, I think about how much better my travel experience is when I can step away from the hubbub of the airport and into a lounge.
The same goes for benefits like priority boarding and elite hotel status. There’s no guarantee that I’m going to get a room upgrade with the Hilton Diamond status I get from the Hilton Honors American Express Aspire Card. But the likelihood of earning an upgrade carries value, as does the free breakfast at every Hilton hotel.
The Bottom Line: Is an Annual Fee Worth It?
At first glance, an annual fee may be a deal-breaker for some, especially during a pandemic and accompanying economic downturn. The idea of paying to have a credit card in your wallet may not make a lot of sense. But depending on the card, you could get far more value out of its rewards program and perks than what you pay each year to keep it.
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That’s not always the case, though, so it’s important to run a quick cost-benefit analysis to determine if a card is worth it, based on how you’d use the card. For example, I canceled a hotel credit card in 2019 because it required me to spend a certain amount each year to get an anniversary free night’s stay. Now, I’m glad I did because I wouldn’t get any benefit at all from the card during the pandemic. The stay itself is worth more than the card’s annual fee, but I likely wouldn’t have spent enough on it to qualify.
As you consider your spending habits and travel plans, run the numbers to ensure you’re getting more than what you’re paying.
If you’re nervous about credit cards with annual fees, remember that you don’t have to start with one of the large-fee cards. Pick one with a low annual fee that earns better rewards in an area where you have higher spending levels (e.g. groceries, dining, gas stations, etc.). Then see how much value you get in exchange.
Regardless of which type of credit card you choose (annual fee or fee-free), be sure to pay off your full statement balance each month. This will both save you money and protect your credit scores from potential damage. After all, money saved and good credit are the best rewards of all.