When to Pay an Annual Credit Card Fee

Does it ever Pay to Pay?

When to Pay an Annual Credit Card Fee
April 8, 2021

Annual credit card fees can cost anywhere from $25 to $450 for high-end "platinum" cards. With all the credit cards available charging no monthly fees, why would you ever pay an annual credit card fee?

The answer is simple and complicated at the same time. The simple answer is whether the benefits of the card outweigh the annual fee. The complicated part is what defines a benefit, and is it really a benefit to you given your credit card usage and spending habits?

Credit card benefits can take many different forms. They could be cash-back offers, lower interest rates, flexible payment options, gift rewards, airline miles, concierge services, extended warranties, partial insurance coverage, waived spending limits, account protection… the list goes on and on.

The following questions can help to clarify credit card benefits and their value to you.

  • Do You Carry Balances? – If you regularly carry balances on your credit card, or do so even a moderate amount of the time, you are likely to wipe out any of the benefits with the increased interest rates that come with most annual-fee, reward-based cards. Credit card companies have to recoup the costs of the rewards and services, and this is one of the ways they do it.

  • Are You Likely to Use the Rewards? – An airline credit card with outstanding benefits for frequent flyers does not have much value to a person who rarely travels, compared to a simple cash-back card that reimburses for all transactions. A platinum card with a higher purchase threshold for rewards may be perfect for a higher income user, but of no value to an average consumer. Conversely, a card that waives foreign transaction fees may quickly pay for itself if you are a frequent international traveler. Another way to ask is this: Do the rewards match your needs?

  • Are the Reward Values Worth The Expense To You? – Simple reward systems like cash-back cards on all purchase are easy to assess – multiply the cash back percentage times the typical charges you would make in a year and compare that number to the annual fee. If there are limitations on the awards such as minimum point values or exclusions for certain types of purchases, you will have to consider those.

    On the other hand, the value of things like concierge service is subjective and hard to quantify. Frequent travelers seem to love them. You not only ask how often you would use them, but how much you would pay for that privilege separately if you needed it.

  • Are Claiming Rewards Easy? – Check for limitations, such as point values or purchase thresholds before the rewards begin. Airline cards are notorious for blackouts and other restrictions, so check online reviews of these cards to assess their performance.

  • Are There Hidden Fees? – Examples include airline miles that require further processing fees through the redeeming airline, and shipping and handling for gift-based redemptions. These do not always involve the credit card company directly, and take a little more research to ferret out.

So when evaluating credit cards with fees, assess the overall value and accessibility of the rewards compared to the annual fee, check the fine print carefully to make sure you understand limitations and restrictions, do some online research on cardholder satisfaction, and shop around to see if the same rewards are available in a different card without fees. However, if you carry balances on your card, forget all of the above and go straight to a no-fee card, and consider using it less often. Your first credit card reward should be no interest fees, but only you can give yourself that benefit by charging wisely.

If you want more credit, check out MoneyTips' list of credit card offers.

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