Published in: Credit Cards | Sept. 1, 2019

In Defense of Annual Fees: Some Rewards Cards Are Worth It

We are committed to full transparency as part of our mission to make the world smarter, happier, & richer. You should know that offers on The Ascent may be from our partners - it's how we make money. That transparency to you is core to our editorial integrity, which isn’t influenced by compensation.

When you see a credit card with a high annual fee, do you immediately cross that card off your list? If so, you could be making a mistake. 

Fees are usually bad news, right? Since we often focus so much on avoiding fees when it comes to our finances, it’s tempting to simply dismiss any credit card with an annual fee as being too expensive. But, if you do this, you could end up missing out on some great rewards credit cards that actually provide better overall value -- even if they come with a hefty annual charge. 

Rather than automatically rejecting any credit card with an annual fee, it’s far better to look into what the card is offering. The fee could pay for itself many times over, and the card could be the best one to keep in your wallet, even if you have to pay several hundred dollars for the privilege of having it.

Not convinced? Here are two prime examples of situations where annual fees would definitely be worth paying. 

Smiling woman leaning out of a train window.

Image source: Getty Images

When the card’s bonus rewards cover the fees -- and more

Some rewards cards offer much more generous cash back, miles, or points than others. And some of the cards with the very best rewards programs charge an annual fee. 

To decide if the fee is worth paying, estimate how much you’d earn with the card that’s offering more generous rewards, and compare it with the fee-free card. 

Say you had a choice between a card with no annual fee that offers a flat 1% cash back on every purchase, or another with a $95 annual fee that gives you 5% cash back on gas and groceries. If the two cards are otherwise identical, divide $95 by .04 to figure out how much you’d have to spend on gas and groceries to make up the 4% difference. This calculation shows that you’d have to spend just $2,375 -- which is about $200 a month -- on gas and groceries to cover the fee. 

If you spend more than this amount, you’d be better off springing for the card that costs you $95 per year. Now, say you spend $5,000 on gas and groceries. This would get you $250 back on the card with the $95 annual fee, but just $50 back on the card with the flat 1% cash back. Even after accounting for the $95 fee, you’re still $105 richer by the end of the year. 

You can do this with any card. Simply figure out how much more generous the rewards are on the card with the fee, and then calculate the necessary amount you’d need to spend before you can finish paying off the fee and start turning a profit. 

When the card comes with perks that justify the fee

Cards with fees may offer more than just better rewards programs. You may also find that you get other cardholder perks such as:

  • Statement credits for certain purchases, such as Uber rides or signing up for TSA PreCheck or Global Entry.
  • Free checked bags on flights for you, and sometimes for your traveling companions as well.
  • Airline lounge access so you can wait for your flight in comfort and enjoy benefits such as free food or drinks.
  • Hotel-specific benefits such as free nights, free premium in-room Wi-Fi, early check-in, or late checkout.

These are just a few of the many examples of cardholder perks that you can get with rewards cards. If a card costs you $95 but saves you $120 in baggage fees because you take four trips a year and check a bag for $30 each time, then paying the fee is worthwhile. 

Just be sure that you’ll actually use the perks enough to make it worthwhile. A card that offers airline lounge access but that has no lounges available in airports you travel to or from isn’t going to do you much good. 

It’s easy to see why annual fees are sometimes worth it

When considering the value of generous rewards programs or other cardholder benefits, it’s easy to see why a card that comes with a fee is sometimes worth paying for. Check out some of the best travel and cash back cards -- both with and without fees -- to compare your options and find the best card for your needs. 

Our #1 cash back pick has a surprise bonus

This may be the perfect cash back card! That's because it packs in $1,148 of value. Cardholders can earn up to 5% cash back, double rewards in the first year, and avoid interest well into 2020. With such a deep bench of perks you'll wonder how this card packs in a $0 annual fee. Best yet, you can apply and get a decision in two minutes. Learn more with our in-depth review.

Find the right card for you

Cash Back & Rewards