Annual Fees: This might not be the most controversial topic you can think of, but you’re sure to start a heated debate when asking credit card users if it’s worth paying a fee. just to use a card.
Some people refuse to pay annual fees whatsoever on the principal. Others do the math and swear that the rewards and perks offered by their expensive premium cards easily justify the annual fee. Who is right?
Is the annual fee worth it on a credit card?
I’ve been studying and writing about credit cards since 2008, and currently have 17 active accounts, split roughly evenly between those with and without annual fees. Let me settle this matter once and for all.
There is no denying that many credit cards have annual fees that may be worth paying. But whether the fees are worth it or not is totally dependent on your circumstances and spending habits.
When you can receive additional rewards and benefits (beyond those offered by a no-annual fee card) worth more than the cost of the annual fee, you’re better off paying the annual fee. That’s not to say that everyone should have a credit card with an annual fee, however. Let’s look at a simple example to demonstrate when a card’s annual fee is (and isn’t) worth it.
American Express Blue Cash: annual fee or no annual fee?
American Express offers two versions of its Blue Cash credit card. The Blue Cash Everyday card has no annual fee and offers 3% cash back at U.S. supermarkets (up to $ 6,000 per year, then 1%), 2% cash back at stations – US service and some US department stores, and 1% cash back on all other purchases.
The other version of the map, Favorite Blue Silver, has an annual fee of $ 95 (waived the first year), but offers much higher cash back rates. It gives 6% cash back in US supermarkets (also up to $ 6,000 per year, then 1%), 6% cash back on some US streaming subscriptions (including Netflix, Disney +, and Apple Music), 3% return on US transit and gas station purchases, and 1% elsewhere. See prices and fees. Conditions apply *
If you used the no-cost Blue Cash Everyday and spent $ 300 per month in US supermarkets, you would earn $ 108 in cash every year. But you would earn $ 216 in cash if you made the same grocery purchases with the Blue Cash Preferred card instead.
By choosing Blue Cash Preferred, you’ll still earn $ 13 upfront on groceries, once you factor in the card’s $ 95 annual fee. That’s before considering the 3% cash back offer at U.S. gas stations and on transit purchases, compared to 2% for Blue Cash Everyday. You also earn extra cash back with the Blue Cash Preferred card offer of 6% cash back on select streaming subscriptions, compared to just 1% with Blue Cash Everyday.
So in this case, anyone who spends $ 300 a month or more on groceries is leaving money on the table by not choosing Blue Cash Preferred and paying the annual fee of $ 95.
Can an annual fee of $ 550 be worth it?
I had the Chase Sapphire Reserve since its introduction four years ago. Until recently, there was an annual fee of $ 450, but it has been increased to $ 550 this year. Yet I have no intention to cancel this. This is because I earn 3 times the points on all trips and meals, and those points are worth at least 1.5 cents each for rewards.
However, it also offers me an annual travel credit of $ 300, that in 2020 you can also use for gas or grocery purchases. Other benefits include a $ 100 credit towards Global Entry or TSA PreCheck and access to Priority Pass Select airport lounges. It even offers $ 120 in DoorDash credits ($ 60 in 2020 and an additional $ 60 in 2021). Each year, I add up the value I receive from these benefits, and I have little difficulty justifying the payment of the annual membership fee.
When no annual fee cards are best
Keep in mind that most cards that charge an annual fee are rewards credit cards, and they are not suitable for everyone. Those who tend to have a balance should focus on pay off their debt and use a card with the lowest possible interest rate. Since rewards credit cards have higher interest rates than similar cards that don’t offer rewards, a rewards card (with or without fees) will be a bad choice when you have to pay interest.
People with modest spending habits will often find it beneficial to use a card with no annual fee as well. For example, if you only spend $ 150 per month in grocery stores, you might not receive enough extra cash back to justify paying $ 95 per year for Blue Cash Preferred instead of using the card without. Blue Cash Everyday fees.
Finally, there has always been room in my wallet for great cards that just don’t have an annual fee. Currently this includes both the Unlimited freedom hunt and The Blue Business® Plus credit card from American Express.
Conclusion: should you pay an annual fee?
The debate between annual credit cards and no-charge credit cards can become controversial, but different people may have different and equally valid arguments on the opposite sides of the issue. Once you understand when and how it can make sense to pay an annual fee to take advantage of certain rewards and benefits, it will be easier to find the best credit card for your needs.