4 Reasons It Pays to Get a Credit Card With an Annual Fee

by Lyle Daly | Updated Sept. 30, 2021 - First published on Feb. 5, 2021

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Annual fees on credit cards have always gotten a bit of a bad rap. Some consumers find the idea of paying for a credit card absurd. I heard a version of that from older relatives as I grew up, and it stuck with me. For years, I didn't want anything to do with credit cards that charged annual fees.

It's important to be able to admit mistakes, and that was one of mine. If you won't even consider credit cards with annual fees, you'll miss out on the cards with the best perks.

These cards often have benefits that make them much more valuable. If you've been on the fence about credit cards with annual fees, here are the biggest reasons to reconsider.

1. More rewards on your purchases

Credit cards with annual fees generally offer more rewards. That's true with both cash back credit cards and travel credit cards. If you spend enough, the extra rewards you earn can far outweigh the cost of an annual fee.

One of the easiest ways to illustrate this is by comparing two popular grocery credit cards.

  • : Earns 6% back at U.S. supermarkets on up to $6,000 in purchases per calendar year, $95 annual fee (waived the first year). (terms apply, see rates and fees)
  • : Earns 3% back at U.S. supermarkets on up to $6,000 in purchases per calendar year, no annual fee. (terms apply, see rates and fees)

Is an extra 3% back on groceries worth a $95 annual fee after the intro period? It is if you spend at least $265 per month in that area. If that's the case, you'd make more money from the , even after its annual fee.

2. A bigger introductory bonus

Sign-up bonuses are the fastest way to collect lots of rewards. Of course, you can get bonuses on credit cards without annual fees. But card issuers reserve their biggest sign-up bonuses for cards with annual fees.

The bonus amounts on no-annual-fee cards are usually anywhere from $100 to $250. Annual-fee cards, on the other hand, can have bonuses worth $500, $1,000, and sometimes even more.

Keep in mind that there are almost always spending requirements to earn sign-up bonuses, and larger bonuses tend to require more spending. You might have to spend $500 in three months for a $200 bonus on a no-annual-fee card. Whereas you might get a $750 bonus on an annual-fee card after $4,000 of purchases in three months. Those are just examples, but they give you an idea of the difference in bonus offers.

3. More features

To make annual fees worth it, card issuers add more features to these cards. Some cards offer spending credits on certain types of purchases. For example, you could find a card that covers $10 per month in Uber spending, pays for a Global Entry membership, or gets you $250 per year in free travel.

Travel rewards cards typically have the most diverse features. There are travel cards that get you airport lounge access, elite status with airlines or hotels, free nights at hotels, and free checked luggage, to name a few common perks.

4. Better consumer and travel protections

One final area where annual-fee cards offer more bang for your buck is complimentary protections. Here are some common consumer and travel protections that credit cards can provide.

  • Purchase protection for new purchases against damage or theft
  • Extended warranty coverage
  • Return protection
  • Cell phone protection
  • Auto rental insurance
  • Reimbursement for delayed/lost luggage
  • Trip cancellation/interruption coverage

You'll find both no-annual-fee cards and annual-fee cards with these types of protections. But as you'd expect, card issuers add more protections to their costlier cards.

There's nothing wrong with no-annual-fee credit cards. Many of them offer great value and won't cost you a thing. At the same time, it's always good to look for the credit cards that will get you the most value. Depending on your lifestyle and your spending habits, you may find a credit card with an annual fee is a better deal.

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