Are you thinking about signing up for a credit card with an annual fee, but wondering if you’ll actually get your money’s worth in benefits and rewards?
If you’re a heavy credit card spender and charge several thousand dollars each year, an annual fee credit card may be a good choice for you. But if you use your credit card much less frequently and charge only a small amount each year, that card with all the fancy perks, benefits and enticing rewards may not make financial sense.
Understanding Annual Fee Credit Cards
Credit cards with annual fees typically offer an array of rewards, including earning points toward free and discounted travel. Depending on the card, there may be a whole range of perks for cardholders such as airline upgrades and lounge access, hotel upgrades, concierge services and exclusive access to concerts, events and more.
There also may be a generous signup bonus, and card issuers often waive the annual fee for the first year of card membership, which can be a great deal, especially if the fee is steep.
Some card issuers offer you the choice of a rewards card with or without an annual fee, making it easier to comparison shop. Keep in mind, though, that the rate of rewards on an annual fee credit card may be higher than on a rewards card without an annual fee.
With all of this in mind, how in the world do you decide? Now’s the time to grab your calculator and do the math. You’ll want to consider not only your spending habits but your lifestyle carefully before you apply.
Is Paying an Annual Fee Worth It?
Recommended Annual Fee Credit Card
Blue Cash Preferred® Card from American Express
- $200 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
- 6% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%) – that means spending $60 a week at U.S. supermarkets could earn over $180 back per year.
- 3% cash back at U.S. gas stations and at select U.S. department stores, 1% back on other purchases.
- Low intro APR: 0% for 12 months on purchases and balance transfers, then a variable rate, currently 13.99% to 24.99%.
- Expanding merchant acceptance: Over 1 million more places in the U.S. started accepting American Express® Cards in the last year.
- $95 annual fee.
- Cash back is received in the form of Reward Dollars that can be easily redeemed for statement credits, gift cards, and merchandise.
- Terms Apply.
Card Details +
Before you sign up for a rewards credit card with an annual fee, consider the following:
- How much do you typically charge on your credit cards each year?
- How much do you need to spend to earn a reward?
- How long would it take you to earn a reward based on your current spending patterns?
- Will the rewards that you expect to earn each year offset the annual fee that the card charges?
- Do you carry a balance? If you do, will the finance charges you pay each month offset any rewards that you earn?
Then, factor in signup bonuses. It is easy to get swayed by a signup bonus that can make a rewards goal tantalizing close in the first year, and with so many cards waiving the annual fee in the first year, you may be all the more tempted to sign up for a card with an annual fee.
But before you do, take a breath and think about where you want to be two, three or even five years from now with a credit card.
Will you still be so committed to collecting rewards and paying annual fees? Are your credit card spending patterns likely to hold steady? For credit-building purposes, you want to keep a credit card account open and in good standing for many years. And that means paying as agreed, including that annual fee. That’s why it’s best to think of signing up for a credit card as a long-term commitment, especially one that charges you an annual fee.
So, keep in mind that it really pays to study those credit card offers carefully. It can be helpful to do side-by-side comparisons of each card’s Schumer Box. It can also help to know what your credit score is so you apply for a card that is geared toward your credit range. That means if you find a great credit card offer that requires excellent credit, you’ll want to make sure you have excellent credit before pulling the application trigger. You can see two of your credit scores for free on Credit.com.
This article was updated September 21st, 2017