Credit card Q&A: “Are credit cards with annual fees worth it?”
There’s probably a misconception out there that all credit cards come with an associated annual fee.
While this certainly isn’t true, there are a good number of credit cards that do have an annual fee. But why?
Well, some credit card issuers offer special perks, like rewards programs, cash back, and other nifty benefits to their cardholders.
In return, they want you to pay for those special privileges, on top of whatever you pay in interest of course.
So when deciding which credit card to get, should you consider cards with an annual fee?
This question isn’t the easiest to answer, as everyone is unique and has a different reason for opening a credit card to begin with.
Let’s review a few different situations where you’d pay an annual fee.
Secured Credit Cards
The problem with these is that they’re often opened as a last resort, because the consumer can’t get a normal credit card.
So sometimes an annual fee is unavoidable.
Also note that so-called “monthly maintenance fees” can apply as well, so you may be better-served co-signing with someone with good credit or applying for a credit card with your bank or credit union instead.
Rewards Credit Cards
Many rewards credit cards, especially travel and hotel credit cards, come with annual fees.
For example, the new Southwest credit card has an annual fee of $99, but you get 6,000 bonus points annually, which pretty much offsets that fee entirely.
That card also comes with 50,000 bonus points after you make your first purchase, which helps justify the annual fee.
Then there’s the Starwood Preferred Guest credit card, which has a $65 annual fee.
It’s a hotel rewards card that comes with up to 30,000 bonus points, so again the annual fee is justified by American Express.
And they waive the annual fee for the first year as an added bonus.
But in both these cases, you need to take advantage of the rewards to justify paying the annual fee.
If you simply feel that it’d be “cool” to get a free hotel room or a free flight now and again, these credit cards aren’t for you.
Instead, check out the Blue Sky from American Express, which comes with awesome travel rewards and no annual fee.
I Want Cash Back
Hey, who doesn’t want cash back? We all do, but many cash back credit cards also come with annual fees.
For example, the Chase Sapphire Preferred card currently offers 50,000 bonus points, which is good for a whopping $500 cash or $625 toward airfare.
This is a pretty stellar deal, but the card has a $95 annual fee. Over time, that fee could eat into that initial bonus if you DO NOT use the card a lot and rack up serious points.
The good news is the annual fee is waived for the first year.
Tip: Even if the annual fee isn’t waived for the first year, simply call your credit card issuer and ask them to waive the fee. It’s not unheard of for them to say “yes” simply to snag your business.
Chase also offers a “no annual fee” alternative via the standard Chase Sapphire card.
You can earn 25,000 bonus points, good for $250 cash. Same great cash rewards too, just a bit less lucrative.
Interestingly, my favorite cash back credit card carries no annual fee. I’m referring to the American Express Blue Cash Everyday card.
You get 0% APR for the first 12 months on purchases, 3% cash back at supermarkets, 2% cash back at gas stations, 2% cash back at department stores, and 1% cash back everywhere else.
When it comes down to it, there are plenty of great options these days for those not willing (or able) to pay an annual fee.
So unless you really think you’ll spend enough each year to offset that annual fee, stick with a card without the pesky fee.
You might find that you’ll earn more rewards and/or cash back without surrendering a chunk of it to the card issuers each year!