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Are Credit Card Annual Fees Worthwhile?

This article was written by in Credit. 17 comments.


The best credit card deals are often spoiled by an annual fee. Annual fees can range from about $50 to $2,500, with the high end reserved for the super-select American Express Centurion Card (the “black card”). In return for this fee, credit card issuers provide a range of benefits beyond what typical no-fee cards offer, including free gifts, a travel agency, and a personal concierge.

From the issuer’s perspective, an annual fee makes a card more exclusive. A higher-quality customer (in terms of credit worthiness and income) will apply for these cards, and these customers will spend more on their credit cards than typical non-business credit card users.

Issuers also use annual fees for certain cards catering to lower-quality consumers — those with lower credit scores who may not be able to qualify for regular credit cards. In this case, the annual fee helps reduce risk to the issuer, but just barely. More importantly, issuers charge fees for some below-average or sub-prime credit cards because they can; these customers have few options if they desperately need a credit card.

Often there is an introductory annual fee of $0 for the first year of cardmembership, so be sure to check the terms and conditions to determine if you’ll need to pay up front or on the first anniversary of your membership.

The value of the annual fee

Whether a credit card is worth the annual fee depends on the conditions. The first condition pertains to the benefits you receive for the card in exchange for that annual fee. If the benefits you receive are worth more to you than the cash in your pocket would be, if you will use those benefits, and if the benefits wouldn’t be cheaper through other avenues, the annual fee might be worthwhile. In some cases, like for those with a substandard credit history, the benefit you receive of just having a credit card to use is worth the annual fee.

It’s important to note that whether you use those benefits plays a large role in determining whether the annual fee is worthwhile. It’s easy to say you’ll use the benefits, and then never take advantage. In some cases, you may wish to use the benefits, but find they aren’t all that great. I used a travel agent through a Visa Signature card, for example, but they weren’t able to do anything for me more than what I was able to do using the Internet myself. In fact, the travel agent needed 24 hours to get back to me, while I could have done the same thing immediately.

The second condition is whether you can receive these same benefits for less money from another service, and if those benefits are comparable.

Shop around. Another credit card may offer the same benefits while charging a lower fee — or no fee at all.

Furthermore, if you don’t pay your balance in full every month, you’ll be subject to interest fees. Worse, you could have late fees and higher default interest rates if you’re not careful. Any of these immediately devalue the benefits, and paying an annual fee on top of these other expenses would be even more detrimental to your financial condition.

In most cases, a credit card annual fee is not worthwhile, but at the same time, for some people an annual fee is not an automatic deal breaker. The extra benefits can often be found on cards that don’t charge annual fees, and these benefits are often unnecessary anyway. Even consumers with low credit scores can often find one free credit card for which they qualify. It’s mainly special situations and needs of experienced consumers that help to justify paying annual fees.

I use a credit card that charges an annual fee, waived for the first year. It’s an airline credit card I’ve mentioned before, the United MileagePlus Explorer Card. I recently passed my first anniversary with the card, though they have not yet charged the annual fee. The benefits have already paid for the potential fee, thanks mainly to the ability to check luggage for free on United flights and travel certificates. If I didn’t travel often, and if United didn’t already have low rates for direct flights on the routes I need, there would have been no reason for me to sign up for this card.

Some credit cards with annual fees

For an overview of the typical credit card featuring annual fees, here is a list of some of the most popular. For the cards that are listed as not having the fees waived for the first year, new customers might be able to negotiate this and avoid paying the annual fee once. The cards that waive the annual fee for the first year have an introductory annual fee of $0 for the first year, then after that the annual fee is charged.*

Credit Card Annual Fee Waived First Year?*
Blue Sky Preferred from American Express $75 No
Southwest Airlines Rapid Rewards Plus Card $69 No
United MileagePlus Explorer Card $95 Yes
The Business Gold Rewards Card from American Express OPEN $175 Yes
Gold Delta SkyMiles Credit Card from American Express $95 Yes

Updated March 10, 2014 and originally published August 17, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 17 comments… read them below or add one }

avatar Eric J. Nisall

They absolutely can be worthwhile. You mention the Centurion Card, but the Platinum Card is a much more realistic example, since the qualifications are much lower and more affordable. The annual fee is $450, but if you use it properly, and this mostly applies to travelers, you can get so much more than that in benefits. It also comes with concierge service, and a host of phone numbers to call for different departments such as travel, event tickets, restaurant reservations, event tickets, etc for free. They have special table reservations at the best restaurants for those who enjoy meals at those types of places, where cardholders can “jump” the line so to speak. For travelers, there are free late check-out upgrades, automatic room upgrades at check-in at hotels. On cruises you can get up to $400 in onboard credits, airport club access that wold normally cost extra for access, $200 airline credits for air travel and more. Overall it would be very much worth the fee if a person is a traveler and would take advantage of even half of the benefits of this particular card. Some of the other cards out there, I would most likely say no, but it all depends on the cost-benefit analysis for each individual.

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avatar Cejay ♦1,521 (Half-Dollar)

I do not think they are worthwhile. Maybe, it is because I do not patronize exclusinve restaurants, really see very little huge events or any of those things so the benefits that Eric mentioned do not pertain to me. The only thing that I consider worthwhile is the cruise benefits. But I cruise every five to six years and with careful checking manage to get credits each year.

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avatar shellye ♦107 (Cent)

They can be worth it, but only if you manage your spending properly, like Eric said in his post above. But as most of us already know, the credit card issuers are banking (literally) on the fact that most people won’t use the credit card perks to their full advantage to offset the annual fee.

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avatar Jake

The Starwood card, after the first year, has a $65 annual fee, and if you’re going to stay in hotels with any frequency, it’s well, well, well, worth it. Heck, they automatically upgrade you every time you stay in their hotels–that alone, if used 2x a year, pays for the fee.

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avatar david M

I love credit cards with fees – however, I NEVER pay the fee.

I get the card and get the bonus points/perks and when the year is over – I cancel the card and do not have to pay the next years annual fee. Many cards offer to waive the fee for the first year – these are the ones I sign up for.

Just got a citibank premier thank you network card – $125 fee that was waived for the first year. After making $1,000 in purchases – I got 50,000 bonus points worth $500 – nice tax free money!

I got the United CC 3 times and got the bonus all 3 times (30,000 points) and canceled at the end of the year. With a few flights and some spending on these cards I was able to fly First Class to Asia in May. The ticket came up as costing $15,000!

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avatar Luke Landes ♦127,435 (Platinum)

David,

It sounds like you’re making the most out of what credit cards can offer.

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avatar Will

Isn’t opening and closing cards within a year a surefire way to kill your credit score?

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avatar Luke Landes ♦127,435 (Platinum)

It’s not as clear-cut as it might seem. Closing *old* accounts can have a negative impact on your credit score, but if you’re closing an account with only a year history, it may not have a strong negative effect. If you only open a new credit account once a year, you probably won’t sustain much damage to the score, as well. I would definitely monitor credit scores if I were to play a game like this.

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avatar David M

I agree with Flexo that you need to monitor your score. I do this everymonth on Credit Karma – my current score is 785.

avatar qixx ♦1,880 (Half-Dollar)

I third that. In addition to Credit Karma i like Quizzle and CreditSesame for monthly monitoring of my credit scores. All three are free too.

avatar Susan

Issuers have memories now and are stricter! Applicants who currently have or have had a credit card (such as the Citi AA or Chase OnePass or Chase United) may not be eligible for a second credit card in the same rewards, or for any bonus offer.

avatar qixx ♦1,880 (Half-Dollar)

With the annual fee on a credit card (as with almost every other fee) call up and see if you can’t get it waived just by asking. You might only get it reduced and might get if waived altogether. Either way is a great way to take care of this fee. And when the card is worth it even with the fee that makes this an added bonus. Just make sure the card is worth if even if you have to pay the full fee.

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avatar Evan

I have the gold card from Amex and the annual fee was waived the first year. Completely worth it – I got 50,000 points and then I used it for the year…paid for 2 tickets from NYC to ATL

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avatar skylog ♦368 (Nickel)

i really do not think they are worthwhile, but perhaps i just have not had/used cards where that may be the case. it seems that many of the travel cards may be worth it, but as i do not travel that much, they would also not be worth it for me.

i use my cards to get the most out of them as i can, and i feel i do a pretty good job. none of them have fees. i suppose in the end it depends a lot on the person and their needs.

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avatar Steve Dupree

I have a Discover card with a $60 annual fee, but for the first two years I get a $10 per month credit (so twice the cost of the fee). After two years I’ll have to reevaluate if it’s worth keeping or if I should downgrade. Discover is, for whatever reason, the only credit card accepted by our daycare.

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avatar qixx ♦1,880 (Half-Dollar)

What version of Discover do you have? I’ve not seen one with this fee and benefit structure before.

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avatar Steve Dupree

Discover Escape

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