Let’s face it: Fees suck.
Whether you’re talking about late fees, investment management fees, or interest rate fees, they’re all just chipping away at your wallet. In fact, some of them may be costing you thousands without you even realizing it!
Under most circumstances, it’s best to avoid fees whenever possible. When it comes to earning credit card rewards, though, paying an annual fee can sometimes be a different story.
If you’re not familiar with the benefits of rewards cards, you may be wondering why anybody would ever pay an annual fee on a credit card. There are dozens of cards that don’t charge annual fees at all, so why even consider such a move?
The truth is, sometimes it actually makes sense to pay an annual fee. Here’s why.
Does an Annual Fee Make Sense?
Look, I hate fees as much as anybody I know. Although I’ve relaxed the purse strings a bit recently, I’m still pretty stingy at heart.
One of the main reasons our family is able to spend on the things we value is because we watch our pennies. We rarely spend money without considering how it affects other areas of our budget, and we especially don’t like wasting money on things like fees.
Still, when it comes to an annual fee on a credit card, we’ll definitely consider the benefits before dismissing the idea. In fact, I’m carrying several cards with annual fees right now. Why? Because it makes sense.
When to Consider Paying an Annual Fee
In most cases, you should only consider paying an annual fee when:
- The card offers a massive signup bonus, or
- The benefits outweigh the cost of the fee.
Several cards offer signup bonuses that are more valuable than the cost of the annual fee. For instance, you may find a card where the signup bonus has a $500 value but the annual fee is only $95. Obviously, that is a win for you.
So, to determine whether you should pay an annual fee, you must understand the card’s benefits. You’ve also gotta weigh those benefits – particularly those that hold some monetary value – against what it costs to keep the card active. You must also decide if these benefits are things you’ll actually use!
In a sense, it’s kinda like shopping sales or using coupons. You may have a coupon for $3 off cat food. Yes, that snowblower may have been 50% off. But, if you live in South Carolina and don’t have a cat, purchasing a snowblower and cat food on sale doesn’t really save you any money!
The same goes for a credit card with an annual fee.
Sure, a particular card may offer $1,000 a year in various travel benefits. But, if you won’t use the benefits, it doesn’t make sense to pay a fee for those benefits, right?
You’ll also want to be sure that you’re not paying for certain benefits twice. For instance, if you already have a card offering Priority Pass lounge access, that devalues the benefits portion of another card which also offers the pass. You may still decide to enroll in a card program to earn a signup bonus, but – if the benefits overlap – paying two annual fees may not be a good decision over the long run.
2 Cards with Annual Fees that May Make Sense
Let’s take a look at a few instances in which paying an annual fee may make sense.
If you enjoy traveling throughout the U.S., Caribbean, and Mexico, a Southwest credit card may be a smart play.
The Southwest Airlines Rapid Rewards Plus Card comes with an annual fee of $69. However, you can also earn a 40,000 point signup bonus after you spend just $1,000 over the first 3 months you have the card. And if you’re a big spender, you can earn another 20,000 points when you spend $12,000 in your first year. So, what does that mean?
40K Southwest points are often good enough (or almost good enough) to book 2 round-trip tickets to Southwest destinations in the Caribbean and Mexico. So, by paying a $69 annual fee, you may be able to redeem over $500 in flights – provided you’re able to earn the signup bonus. That’s a net gain of over $430. Obviously, it could make sense to pay the fee if your travel plans include the Caribbean. If you can get the additional 20,000 points, you’ll likely have enough for 3 round-trip tickets, depending on fare pricing and your travel plans.
Looking for a card with even more flexible points? Here’s one for you.
If you are a frequent traveler, the Chase Sapphire Reserve Card might make sense for you. Even though the card has an annual fee of $450, it comes with a huge signup bonus and some awesome travel benefits.
For starters, after spending $4,000 on purchases in the first 3 months, you’ll earn a signup bonus of 50,000 Chase Ultimate Rewards points. Those points are good for $500 in gift cards, $750 in travel (when redeemed through the Chase portal), and sometimes even more when you transfer them to a Chase travel partner program like IHG, Hyatt, United Airlines, and more. In this case, the signup bonus alone pays for the annual fee.
Additionally, the Chase Sapphire Reserve offers an annual travel credit of $300. Just use your card to make travel purchases, claim the credit, and you’ll be reimbursed. This effectively makes the annual fee just $150 per year, and we haven’t even mentioned that you get Priority Pass lounge access and a $100 credit toward TSA Precheck or Global Entry. Plus, you’ll continue to earn points on every purchase you make.
As you can see, if you like to travel, the annual fee on this card could easily pay for itself. Personally, I think this is the best travel card available, and I always carry it in my wallet.
Of course, these aren’t the only cards where it makes sense to pay a fee. Not even close! There are several cards where paying an annual fee could be worth it. It’s just a matter of finding the card that works for you!
While paying an annual fee isn’t ideal, the fact is – in many cases – the annual fee more than pays for itself. In addition to offering some exceptional benefits, some of the credits and bonuses make paying an annual fee mathematically worth it.
With that said, paying an annual fee isn’t always cut and dry. Although you shouldn’t rule out a card based on the annual fee alone, it’s always important to understand what benefits a card offers and whether those benefits actually apply to you.
Thanks so much for reading, and – until next time – happy traveling!
Would you ever consider using a credit card that charges an annual fee? Let us know in the comments!