by Matt Frankel, CFP | June 3, 2019
If a card provides enough value for you, it can be worth a high price tag.
The high-end, or premium credit card market has grown considerably over the past few years. There are now a wide variety of airline, hotel, and general travel credit cards with annual fees of several hundred dollars.
If you've been thinking about getting a premium credit card for yourself, or if you're even just curious about how credit cards with such high annual fees could possibly be worth the price, here's a quick rundown of how to decide whether a premium credit card is a smart move for you.
There are two main characteristics that make a credit card "premium." The first is the benefit package offered. Premium credit cards often come with useful travel benefits such as reimbursements for travel expenses, airport lounge access, a free Global Entry or TSA PreCheck membership, elite status on airlines and hotel chains, and more.
The second is cost. Premium credit cards are expensive relative to most other credit card products. A credit card's price tag generally puts it in the premium category if the annual fee is $400 per year or more.
You may be asking yourself "who in the world would pay that much for a credit card?" However, for many people, a high-cost premium credit card could be well worth the hefty price. It depends on the benefits offered by the card and how much you use them.
When you're considering a premium credit card, the deciding factor shouldn't just be whether the card's benefits are appealing to you. Instead, the important question to ask yourself is if the value that you'll get from the benefits justifies its annual fee.
In other words, if a certain premium credit card's main benefits include free checked bags on flights and lounge access, but the card comes with a $450 annual fee, it's important to make sure you'll actually get $450 worth of those benefits by using the card.
It's also important to mention that any promotional offers or introductory bonuses shouldn't be taken into consideration when assessing value. Thanks to some of today's massive credit card sign-up bonuses, it's rather easy to make a value case for any premium credit card during the first year of membership. However, that doesn't tell you whether it'll be worthwhile on an ongoing basis. I also tend to ignore rewards programs when making value assessments, simply because there are non-premium credit cards that earn rewards at comparable rates to every premium credit card I know of, so this isn't really a differentiator.
Let's say that you're considering applying for a hypothetical premium credit card. The card costs $500 per year and comes with the following key benefits:
We'll assume that you spend at least $200 on travel expenses each year, so this benefit alone brings the net cost of the card down to $300. Subtract $20 per year for the Global Entry credit, and we're down to $280.
Different travel experts value lounge access differently, and since different lounges have different amenities there's not a one-size-fits-all valuation method. That said, I'd conservatively value airport lounge access at about $30 per visit. That's what I'd typically spend in an airport for food and a couple of drinks, plus a few dollars for the luxury of a quiet space to get some work done. And to be clear, the value you get from airport lounges could be significantly different.
So in my case, if I use the airport lounge benefit of our hypothetical credit card at least 10 times per year, including any free guests I can bring in, the card would be worth it to me. If this were the case, I'd consider getting the card. If not, the value probably wouldn't make sense.
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.
But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases into 2022, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.
That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.
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