Since I write about factors, miles and bank cards, the subject of annual charges usually comes up with family and friends.
I’ve been shocked to listen to how many individuals keep away from — and, in some instances, utterly exclude — playing cards with annual charges. “I’ve heard many people say, “Why would I pay to have a credit score card when there are such a lot of choices with out annual charges?” and “Paying a credit score card annual payment simply is not value it.”
Sure, no one likes paying credit card annual fees. However, paying an annual fee can often unlock earnings and benefits that offset the annual fee. So today, I’ll consider various aspects related to credit card annual fees, including when it may be worth paying an annual fee.
What is a credit card annual fee?
A credit card annual fee is a fee charged by the credit card issuer that you’re required to pay each year to remain a cardholder.
The exact amount varies, depending on the level of perks and rewards offered on the specific card. However, these fees typically start around $50 and can climb to nearly $800 for premium-level cards. For example, the Chase Sapphire Reserve® (see rates and fees) recently underwent significant changes, bringing its annual fee to $795.
Related: 11 major mistakes people make with travel rewards credit cards
When do you pay the credit card annual fee?
A credit card’s annual fee typically appears on your first monthly statement. In subsequent years, the issuer will charge your annual fee on or around your account anniversary, which should occur around the same time of year that you originally opened the card.
Note that some cards offer an annual fee waiver for your first year. You’ll see this clearly stated when you apply. For these cards, you’ll be charged the annual fee on each account anniversary — but you’ll enjoy the first year of benefits and rewards without any out-of-pocket cost.
Related: Do credit card annual fees count toward bonus spending requirements?
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Can I get the credit card annual fee waived?
As mentioned, some cards waive your annual fee for the first year. Some issuers also offer discounted annual fees or perks to high-value banking or investment customers.
You should expect to pay the full annual fee each year unless you qualify for a waiver or reduction. But if a card has reduced benefits in the last year or you have had specific issues with your account, you can call the number on the back of the card or use your issuer’s secure messaging function when your annual fee posts to express your concerns.
The agent may be able to grant you a retention offer (usually in the form of a reduced annual fee, bonus rewards or a spending challenge) that can make it more appealing to pay the annual fee and keep the card.
What cards usually have annual fees?
Two types of credit cards typically charge annual fees: starter cards designed for consumers with limited or poor credit and travel rewards cards that offer various perks and benefits.
If you have limited or poor credit, you may need to pay an annual fee in exchange for having a secured card and building your credit. Alternatively, rewards cards often charge an annual fee but offer benefits, statement credits and other perks that can be worth more than the annual fee to some cardholders.
Related: The best credit cards with annual fees under $100
When is it worth paying a credit card annual fee?
To earn valuable points
Generally speaking, cards without an annual fee won’t provide the valuable earning potential of cards with an annual fee. There are three main aspects to this:
Welcome bonus: Most cards with no annual fee have less valuable welcome bonuses than those with annual fees. For example, the no-annual-fee Ink Business Cash® Credit Card (see rates and fees) offers up to $750 cash back: $350 bonus cash back after spending $3,000 on purchases in the first three months and an additional $400 after spending $6,000 on purchases in the first six months from account opening. Meanwhile, the $95-annual-fee Ink Business Preferred® Credit Card (see rates and fees) offers 90,000 bonus points after spending $8,000 on purchases in the first three months from account opening, a more valuable offer.
Earning rates: Many cards without an annual fee don’t award points at the same rate as cards with an annual fee. For example, the no-annual-fee Capital One VentureOne Rewards Credit Card earns 1.25 miles per dollar spent, while the $95-annual-fee Capital One Venture Rewards Credit Card earns 2 miles per dollar spent.
Type of points: In some cases, issuers will restrict you from earning the most valuable currencies on cards with no annual fee. For example, the no-annual-fee Chase Freedom Flex® (see rates and fees) and Chase Freedom Unlimited® (see rates and fees) only earn cash-back rewards — unless you also have a card that earns Chase Ultimate Rewards points, such as the Chase Sapphire Reserve, Chase Sapphire Preferred® Card (see rates and fees) or Ink Business Preferred (all of which charge annual fees).
The information for the Chase Freedom Flex has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related: How (and why) you should earn transferable points
To receive annual credits, bonuses or free nights
These perks may cover most (if not all) of the card’s annual fee. Here are a few examples:
The information for the Hilton Aspire and Southwest Rapid Rewards Premier has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
To access benefits
Many top credit cards with an annual fee give you numerous benefits that can be incredibly valuable over a year. For example, some airline credit cards offer a free checked bag, and some cards offer shopping protections that can provide peace of mind (such as the extended warranty protection provided by the Chase Sapphire Preferred).
Several travel rewards cards, including The Platinum Card® from American Express, Capital One Venture X Rewards Credit Card and Chase Sapphire Reserve, shine with premium perks such as lounge access and travel protections. Depending on your situation, carrying one of these cards can easily justify the card’s annual fee.
What are some of the best cards with no annual fee?
Everyone should get (and keep) at least one no-annual-fee credit card. This advice holds even if you already have several cards that charge annual fees. There are many credit cards with no annual fees, but here are some of our favorites:
Since you don’t have to pay anything to keep these cards, you can keep them open for the long term — and by doing so, you can boost your credit history length, which should help your credit score.
Related: No-annual-fee credit cards that earn transferable points
Should I get the no-annual-fee version of a card?
Some travel rewards credit cards come in multiple versions, and one option typically offers no annual fee. To decide whether it’s worth getting a version with an annual fee, consider the following factors:
You may find that the additional perks and higher earning rates justify paying an annual fee. The welcome bonus difference may also make your choice easy. After all, the card with an annual fee will often offer a higher welcome bonus that can make it worth picking.
Then, if you can’t justify paying the annual fee after the first year, you can usually downgrade to the no-annual-fee version.
Related: The best welcome offers this month
Bottom line
Don’t dismiss bank cards with annual charges with out doing the mathematics. These playing cards usually include worthwhile perks, elevated incomes charges and welcome bonuses that may far outweigh the price. If you journey steadily or wish to maximize rewards, paying an annual payment could possibly be a sensible funding that unlocks long-term worth.
Related: Are premium bank cards well worth the annual payment?
For Capital One merchandise listed on this web page, a few of the advantages could also be supplied by Visa® or Mastercard® and will fluctuate by product. See the respective Guide to Benefits for particulars, as phrases and exclusions apply.
