Are Credit Cards With Annual Fees Worth It?

Introduction

Go to any credit card issuer website and you’ll see that all sorts of card options exist out there — each with its own benefits, rewards, and features. And if you’re in the market for a new card, it’s important to consider these details to ensure you get the right card.

Another thing to factor in when deciding which card you want? Whether it comes with an annual fee or not.

What Is an Annual Fee?

A credit card annual fee is exactly what it sounds like: it’s a fee that’s charged annually for as long as the card remains open. The fee is essentially the cover charge for the ability to use that card and the valuable benefits that come along with it. Fees differ from issuer to issuer, but typically range from $39 to $99 — and even hundreds or thousands of dollars per year for some ultra-premium cards.

When Will Your Credit Card Annual Fee Be Charged?

The exact date can vary, but most credit card companies charge your annual fee during the first statement period and then once every 12 months after that. So you can generally expect it around the same time every year. However, some issuers may split the fee into equal monthly installments throughout the year.

When it’s time to pay your annual fee, it shows up as a charge alongside purchases and other transactions on your monthly statement. After that, you pay it like any other charge that month.

Pros and Cons of Getting a Credit Card With No Annual Fee

Not every credit card has an annual fee. So if you’ve found a card that fits your needs and it doesn’t have an annual fee … good on you! At the same time — and while it can seem a little backward to spend money in order to have the opportunity to spend more money — sometimes that annual fee can be worth it in the long run.

In other words, there are pros and cons to having a credit card sans fee.

Pros:

• No fee!
  This is a pretty obvious one: you don’t have to pay a fee! And money saved on a fee is money in your pocket for other needs or wants. 

• A low-cost method to build credit
  Assuming you’re using the card responsibly and paying the balance on time, you can build positive credit history without the additional cost of an annual fee. 

• Rewards programs
  Even cards with no annual fees can come with respectable rewards programs. For example, the Credit One Bank Platinum Rewards Visa with No Annual Fee provides 2% cash back rewards on eligible everyday purchases like gas and groceries. So if you’re concerned about not getting any rewards unless you pay a fee, don’t fret.

Cons:

• Lesser rewards programs
  Wait … weren’t rewards programs just a pro? While no-fee cards can come with decent rewards, they may be less hearty than those with a fee-carrying card. And, depending on your spending habits, those extra benefits could cancel out any fee you may be paying.

For example, say you had a 5% cash back rewards card with a $95 annual fee. If you spent $2,000 on eligible purchases per year (5% of $2,000 = $100), you’d be earning more cash back rewards than your fee. After that, the rest is just gravy. 

• Smaller sign-up bonuses
  Credit cards with no annual fee typically have a smaller sign-up bonus or won’t have one at all.

•  Fewer additional perks
  Alongside the rewards programs we all know and love (such as cash back rewards, points, or travel miles), many fee-carrying cards come with additional perks that a no-fee card may not. So, if you want things like no foreign transaction fees or airport lounge access (to name a couple), you may not be in luck if you have a card with no annual fee.

When It Could Make Sense To Pay a Credit Card Annual Fee

Even after you’ve weighed the pros and cons of a card without an annual fee, you may want to dig a little deeper before deciding what kind of card to get. You’ll probably want to think about your own situation, as well as the cards you’re interested in.

Here are some situations where a card with an annual fee could make sense.

The value of rewards justifies the annual fee

An annual fee is often associated with rewards cards, but it’s good to check if you’ll actually earn enough to make the fee worth it. So if you travel a lot, a card that earns on travel spending could make sense. Fancy yourself a home chef? Check for rewards on grocery stores.

You can review your average credit card spending going back at least a few months to get an idea of how much you could earn in rewards with a new card. If you can “beat” the annual fee, you’re in a good place.

There’s a big sign-up bonus to offset the annual fee

Some cards come with a sign-up bonus (also called a welcome or introductory bonus) that might be lucrative. These are typically earned by spending a certain amount on the card within an introductory period.

Let’s say a rewards card with a $95 annual fee offers 2% cash back rewards on all spending, plus $100 bonus cash back after spending $2,000 in the first three months.

Even if you ignore the standard rewards entirely, you’d make up for the annual fee with the sign-up offer — and you’d even be $5 ahead.

You can take advantage of the card’s extra benefits and perks

Besides rewards, credit cards with an annual fee are also associated with high-end benefits and perks.

Cards may include features like trip cancellation insurance, hotel status, or credits toward services like TSA PreCheck, Global Entry, streaming, rideshare, and more.

If a card’s included benefits are something you’d take advantage of, they could justify an annual fee.

You’re in the process of rebuilding credit

Some credit cards for people who are building or rebuilding their credit may come with an annual fee.

If you’re working on your credit and your options are otherwise limited, a card with an annual fee might make sense.

A secured card could be another option for rebuilding credit. These require an upfront deposit, which typically establishes your credit limit. However, this deposit will likely require more cash than the typical annual fee, since it serves as your credit limit. This deposit is generally refundable down the line if you close the account or change it to an unsecured card.

And some secured cards also come with an annual fee, so it still may be a factor to consider.

When It Doesn’t Make Sense To Pay an Annual Fee

There can be situations where a card with an annual fee, regardless of great rewards and elite benefits, doesn’t really work out for you.

Your spending wouldn’t earn enough rewards

You might not spend enough on your card to earn back the value of the annual fee in rewards.

For example, a travel card that earns rewards on flights and hotels might not make sense for someone who prefers road trips and camping.

Again, reviewing your typical spending and calculating how much you’d earn could help you work this out.

You wouldn’t use the benefits

If a great benefit goes unused, is it really that great? Credit cards with an annual fee often have amazing perks, but they might not justify that fee if they’re irrelevant to you.

You’re prioritizing paying off debt

Credit card rewards can be a fantastic perk on top of your regular spending. But you generally need to be paying off your full balance each month to make them worthwhile.

So if you’re working on paying off debt, like other credit card balances, it might make more sense to put every dollar possible toward that, rather than taking on another fee.

The card’s benefits drop off after a year or a limited time

In addition to sign-up offers, some cards have promotional benefits that only apply for the first year or an otherwise limited time, like boosted rewards earning or a credit towards delivery services.

Once that promotion is over, you might want to reevaluate the card’s annual fee.

Three Things To Know About Annual Fees

1. Annual fees can be waived sometimes: Some companies waive the annual fee on a card for the first year as a promotion. But if your account is in good standing, it still might be worth asking if they’ll waive the fee. The worst thing that can happen is they say no. And if the issuer offers a fee and non-fee version of the same card with different benefits, you may be able to change to that card. That’s not technically waiving the fee, but you get the same effect.

2. Annual fees vary widely in cost: Typically, credit card annual fees are under $100, but they can go up beyond $500 for certain luxury cards.

3. Annual fees can be worth it: The benefits can more than make up for the fee. You just have to know if it does for your particular situation.

Bottom Line

In the grand scheme of things, choosing a credit card should be all about what works for your needs, your finances, and your goals. If you’re deciding between a card with a fee and one without, weigh the pros and cons, read the details, and choose the one that makes the most sense for you.

If you’ve weighed your options and are looking to apply for a new card, you can see if you pre-qualify for one from Credit One Bank card. There’s no impact to your credit score just for checking.

FAQs About Credit Cards With Annual Fees

Can you cancel a credit card with an annual fee?

You can cancel a credit card with an annual fee, but you may want to confirm if your issuer refunds all, part of, or none of the annual fee. Some issuers may offer a pro-rated refund based on when you cancel.

One alternative to cancelling a card with an annual fee is asking if you can switch to a different card without an annual fee.

How do you avoid a credit card annual fee?

If a card comes with an annual fee, it’s unlikely — but not impossible — that the fee can be avoided.

A credit card might have a promotional period, typically for the first year, where a card’s annual fee is waived.

Some issuers may waive the fee for on-duty military or in other specific circumstances, but this varies from issuer to issuer.

And if your account is in good standing, you may also be able call and ask if your card’s fee can be waived.

Can the annual fee be waived?

There are circumstances where a credit card’s annual fee can be waived, so it may be worth calling to ask. For example, some issuers may do so for on-duty military or in other specific circumstances, but this depends on the individual issuer.

Is there an alternative to an annual fee credit card?

A credit card without an annual fee could be a valid alternative to one with an annual fee. Especially if it has rewards and benefits that you find useful.

Do you have to pay an annual fee on a credit card if you don’t use it?

Generally speaking, you’d still have to pay the annual fee on a credit card whether you use it or not, as long as it’s open.

But if you find that you don’t use or need the card, you may be able to contact your issuer to cancel it, change it to a different card without an annual fee, or ask if they can waive the fee.