Home > Credit Cards > Credit Cards With Annual Fees: When They’re Worth It

Comments 0 Comments

For money-conscious and credit-savvy consumers, the idea of paying an annual fee for the privilege of carrying a credit card may sound absurd. Annual fees can range anywhere from $39 to $450 and higher, and when you consider the number of credit cards that don’t charge an annual fee, it just doesn’t make sense to pay an annual fee if you don’t have to. So why, then, would anyone opt for a credit card with an annual fee over one without?

The answer: rewards, and lots of them. Typically credit cards that carry annual fees are almost always rewards cards. This doesn’t mean that all rewards cards carry annual fees, but those that do often offer more generous rewards with higher points, miles or cash-back incentives. Many also include exclusive membership benefits that provide access to airport lounges and other perks like complimentary concierge services, free airline passes, discounted hotel and car rental rates, hotel upgrades and reservation guarantees, priority boarding and first-class upgrades — the list goes on.

The more generous the rewards, the more tempting they are. Don’t let that fool you, though. Credit cards with annual fees aren’t for everyone.

When Annual Fees Are a Bad Idea

If you tend to carry a balance on your credit cards every month, a credit card with an annual fee is probably not a good idea. Along with annual fees, rewards cards also tend to carry higher interest rates. The interest charges alone would wipe out any reward incentives that might have made the annual fee worth the cost.

When Annual Fees Make Financial Sense

Credit cards with annual fees aren’t always a bad deal. For the right person, an annual fee credit card may actually be worth the fee and a great deal to boot.

If you pay your balance in full every month, charge more than $10,000-$15,000 a year on your cards, or travel frequently — paying the annual fee may make financial sense. Here’s how to make the most of your card and its benefits.

Earn the Right Rewards for Your Lifestyle

For an annual fee to be worthwhile, the rewards need to fit your lifestyle. For example, if you charge thousands of dollars on purchases but rarely fly, a rewards card that offers free airline tickets, extra travel miles, complimentary use of airline lounges, priority first-class upgrades and free baggage checks wouldn’t be such a great deal. A rewards program with 3 percent to 6 percent cash back on all purchases and no limits, however, would be a much better fit.

Use Rewards to Offset the Annual Fee

This sounds like a no-brainer but if you earn rewards and never use them, you’re wasting money on an annual fee. If you’re going to pay an annual fee, take advantage of the rewards and use them.

Maximize Your Rewards

To make sure your rewards offset the cost of any annual fee you might pay, you’ll want to maximize the rewards you do earn. This means using your card, and using it a lot. You should never spend more than you normally would — and ideally, no more than you can pay off each month — just to rack up rewards, however. Remember, annual fee credit cards aren’t right for everyone. And unless you’re a big spender, paying an annual fee for rewards — no matter how great they are — isn’t worth it if you aren’t able to earn the rewards you’re paying for.

A word of caution when choosing a credit card with annual fee — or any credit card for that matter — you should always shop around and compare credit card offers to make sure you’re getting the best deal. Pay close attention to the introductory terms. Many cards will waive fees for the first year to make the offer more enticing. After the first year, the fees kick in and so you’ll want to make sure the rewards are still worth the fee in the long run.

Image: iStockphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team