5 Credit Cards with Annual Fees Worth Paying
Are you always better off going with credit cards that charge no annual fee? All things being equal, that’s definitely true. But when it comes to credit cards, all things are not equal. There are many credit cards with annual fees worth paying.
You always have to weigh out the rewards and benefits a credit card provides. It’s never simply a matter of no-annual fee cards good, annual fee credit cards bad. If two cards offer roughly equal rewards and benefits, you’re definitely better off going with the no fee card. But that’s not usually the case, and that’s why you have to do some serious research when you’re looking at card offers.
You may be surprised to find that the card with an annual fee actually costs less to have than the card with no annual fee.
How Much can You Expect to Pay for an Annual Fee
The range on annual credit card fees is anywhere between zero, and your worst nightmare.
For example, at the high-end is the American Express Centurion Card. It has an annual fee of $2,500. And that’s not the worst of it. They also charge an initiation fee of $7,500! You’d need $10,000 upfront just to sign up for that card.
Naturally, a card with a fee that high is reserved for the most elite customers–those who expect top-of-the-line benefits, and won’t flinch at an upfront payment of many thousands of dollars. They’re not designed for the average consumer looking for the most cost-effective credit card available.
Among credit cards that do charge annual fees, the norm is something just below $100. Typically, that’s anywhere between $89 and $99. We can presume credit card companies have done a considerable amount of research, and discovered that fees of $100 and higher will chase away most customers. But many will also waive the annual fee in the first year as an incentive.
Why Do Credit Card Companies Charge an Annual Fee at All?
The simple answer is because they can! It’s a source of additional revenue for the credit card company. Sure, their primary revenue may come from interest charged on unpaid balances. But like all financial institutions, they’re always looking to enhance revenues by plugging in a nickel here and a dime there. The fees are relatively small, but they add up to big money across millions of customers for the institution.
That’s not comforting, but it’s part and parcel of capitalism. Companies can charge an annual fee if the benefits the card provides more than justify the charge. They can also charge an annual fee if it’s normal industry wide. If the credit card business became intensely competitive, annual fees might disappear as issuers look to expand business.
On a more practical level, there’s also the matter of inactive accounts. If credit card companies make most of their money from interest, they’ll make no money on cards that aren’t used.
That’s not entirely unusual either. Most consumers have more than one credit card–many have a half-dozen or more. They may use only one or two at a time. In addition, with people being so focused on credit score manipulation, they may apply for credit cards and not use them. The entire purpose of the additional cards is to increase their overall credit limits, which lowers their credit utilization ratio. It’s a time-honored way to raise your credit score.
But there’s one other factor at work. Annual fees serve as something of a consumer filter. Consumers with weaker credit profiles may avoid applying for a card because of the fee. Consumers with strong credit profiles may be drawn to the implied exclusivity of a card with a fee. In other words, the annual fee draws more creditworthy applicants.
Are You Generally Better Off with a No Annual Fee Credit Card?
Once again, we get back to that “all things being equal” factor. If there’s a choice between two cards, with approximately the same rewards and benefits, the no fee card is the easy choice.
But if you’re looking at a credit card that has no annual fee–but no particularly interesting rewards or benefits–you might want to take a long hard look at the cards that charge a fee.
The complication is that there are hundreds of credit card companies with literally thousands of credit card offers. The same company that provides a no-frills, no annual fee card, will usually have several cards that do charge a fee, ranging from modest to elite class.
This is why there are so many articles written on credit cards. The basic concept may be simple, but the true value is in the details of what each card offers.
The moral of the story: never assume one credit card is better than another based simply on the annual fee. In analyzing 10 credit card offers, it could very well turn out that the one with no annual fee is the worst deal in the bunch.
The Cost/Benefit Analysis
The counter argument is that a credit card isn’t automatically better because it has an annual fee. A credit card company may offer a no-frills card with no annual fee because it has no particular interest in promoting that card. And if a few consumers are willing to take the card and pay the fee, so much the better.
It all comes down to the cost/benefit analysis. This can be even more important when you’re comparing multiple credit card offers, each with annual fees and its own lineup of rewards and benefits.
Naturally, you’ll be most concerned with the cost/benefit analysis in the first year of the card. For example, if a card charges an annual fee of $95, but they provide $600 worth of rewards in the first year, it might look better than another card with the same annual fee, and only $500 in first year rewards.
But unless you’re planning to use the card for only one year–and then dispose of it–you should also look beyond the first year.
If deeper analysis shows that the credit card with $600 in first year rewards is likely to result in only $100 per year in rewards thereafter, it may be less attractive than the card with $500 in first year rewards, that’s likely to result in $200 per year in rewards going forward.
The analysis of subsequent years rewards can be more important than the sign-up bonus. That’s because you’ll be paying the annual fee each year that you have the card. You’ll want to be sure the benefits will outweigh the cost in the foreseeable future, and not just in the year you sign up for the offer.
In that regard, there’s one major variable to consider…
Your Own Spending and Credit Card Usage Matter!
No matter how attractive a credit card offer is, it will only be a benefit if it fits within your preferences and lifestyle. Translation: Don’t look for the best credit card deal, instead look for the best credit card deal for you.
Many credit cards offer generous travel rewards. If you’re a frequent traveler, these cards are attractive. But what if you hardly travel at all? The rewards won’t help you. You’ll be better off looking for a card that offers either cash back or a statement credit.
Even more important, you’ll be interested in a card that provides consistent rewards for ordinary spending. Cards that accumulate rewards and benefits based on travel will be lost if you’re never going to use them.
Here’s a point that’s even more basic: credit card rewards may be close to worthless if you’re not a frequent credit card user.
In that case, you may be better off with a card with no annual fee.
Credit card companies don’t offer rewards and benefits because they like to be nice guys and girls. They offer them to:
A. Entice you into selecting their credit card offer, and
B. To give you incentive to spend more money on the card.
Point B is particularly important. Companies issue credit cards to make money. The more you spend on the card, the more money they make. Not only do they make money on the interest you pay on unpaid balances, but they also get transaction fees of between 1.5% and 3.5% from the merchants you buy from. The rewards and benefits are designed to get you to spend even more than you would ordinarily.
When you’re evaluating credit card rewards and benefits, be sure to take your own spending and credit card usage into consideration.
Credit Cards with Annual Fees Worth Paying
Below are five popular credit cards that are excellent examples of credit cards with annual fees worth paying. In each case, the primary rewards alone justify the annual fee several times over.
Barclaycard Arrival Plus World Elite Mastercard
Annual Fee: $89
• 60,000 miles/$600 statement credit toward travel purchases for new customers who spend $5K within the first 90 days
• 2X miles on ALL purchases
Capital One Venture Rewards Credit Card
Annual Fee: $95
• 50,000 miles for travel purchases(after you spend $3K in the first 3 mo)
• 10X miles on select hotels
• 2X miles on other purchases
• $100 Global Entry or TSA PreCheck credit
Blue Cash Preferred® Card from American Express
Annual Fee: $95
- $350 statement credit (after you spend $3K in purchases in the first 6 months). Terms apply
- 0% intro APR on purchases and balance transfers for 12 months from the date of account opening. Your APR, after that, will be a variable APR of 16.99%-27.99%.
- 6% cash back on the first $6,000 spent annually at U.S. supermarkets (then 1%)
- 6% cash back on select U.S. streaming subscriptions
- 3% cash back at U.S. gas stations and on transit
- 1% cash back on all other purchases
- Terms Apply.
Marriott Rewards Premier Plus Credit Card
Annual Fee: $95
• 75,000 bonus points (when you spend $3K within the first 3 mo)
• 6 points for every $1 spent at Marriott hotels; 2 points for every $1 on other purchases
• 1 free night (up to 35,000 points) at a participating hotel each year after your account anniversary
Let’s take a look at one example, the Blue Cash Preferred Card from American Express. It has a $95 annual fee. But you get the following rewards for using the card:
- $350 statement credit after spending at least $3,000 in the first six months. Terms apply.
- 6% cash back at U.S. supermarket up to $6,000 (worth up to $360, then 1%)
- 6% cash back on select U.S. streaming subscriptions
- 3% at U.S. gas stations and on transit and on transit (including taxis/rideshare, tolls, parking trains, buses and more)
- 1% on all other purchases
- Terms apply
The total of the rewards comes to notable amount, more than multiple times the cost of the $95 annual fee. And those are just the most obvious rewards. Other benefits will take a calculator and a couple of hours of careful research to determine. But rest assured, the annual fee is more than justified on this card, and others listed in the table above.
Final Thoughts on Credit Cards with Annual Fees Worth Paying
Never assume one credit card is automatically better than another because it has no annual fee. Credit card offers are just not that simple. Consider your own credit card usage and spending patterns, and first determine if the rewards and benefits offered will work for you. In most cases, you’ll find plenty of credit cards with annual fees worth paying.