Published in: Credit Cards | Aug. 10, 2019
What Does a Credit Card's Annual Fee Get You?
Here are some of the benefits credit cards with annual fees offer, and how to tell if an annual fee is worth paying.
You may have seen a credit card with an annual fee in the hundreds of dollars and wondered “Why on Earth would anyone pay that much just to get a credit card?”
While some credit cards have annual fees that can certainly cause a bit of sticker shock, the reality is that most credit cards with fees have superior cardholder benefits when compared with no-annual-fee credit cards. Here’s a rundown of some of the benefits you can get in exchange for paying an annual fee, as well as how to tell if an annual fee is worth paying or not.
Why do some credit cards charge annual fees while others don’t?
There are some excellent credit cards that don’t charge annual fees. For instance, it’s not difficult to find a great no-annual-fee credit card with a competitive cash-back rewards rate or a long 0% intro APR period.
Annual fees are generally not correlated with the quality of an ongoing rewards program. Instead, credit card annual fees are typically intended to offset the cost of other perks offered by a particular credit card, such as travel benefits.
Credit card annual fees vary dramatically. Some charge annual fees in the $50 range while one particular high-end credit card charges thousands of dollars each year.
What types of perks are common among cards with annual fees?
Obviously, there are hundreds of different credit cards with a variety of perks. And as I mentioned, annual fees vary. Credit cards with small annual fees may only offer one or two value-adding perks while cards with high annual fees may have a long list of benefits.
With that in mind, here are some perks that are commonly offered by credit cards with annual fees:
- Free hotel nights each year
- Elite status at a particular airline, hotel chain, or rental car company
- Free checked bags on a certain airline
- Discounts on purchases at a certain hotel chain or airline
- Travel or airline fee reimbursement
- Ride-sharing reimbursement (like Uber)
- Concierge assistance for things like restaurant reservations and event tickets
- TSA PreCheck or Global Entry reimbursement
- Airport lounge access
- Travel insurance benefits (rental car coverage, travel delay coverage, etc.)
- Price protection or extended warranties on purchases
- Unique reward point redemption options
Should you get a credit card with an annual fee?
The most important question to ask is whether a credit card with an annual fee will deliver enough value to make it worthwhile for you.
Here’s a personal example. The go-to credit card in my wallet right now charges a $550 annual fee, which many of my friends have commented that I’m crazy for paying. However, I get the following benefits, among others:
- $200 in fee reimbursement on my chosen airline plus another $200 in free Uber rides. These benefits alone knock the effective cost of the card down to $150, as long as I use them (which I do).
- Airport lounge access. Based on the free food and drink I get, plus a quiet workspace at the airport, I conservatively value this benefit at $20 per visit. I fly about 10 round trips per year (20 lounge visits), so I value this benefit at about $400 per year.
- Free TSA PreCheck, which costs $85 every five years.
- Elite status at the hotel brand where I typically stay when I travel. This gets me late check-out, room upgrades, and more.
So you can see how the card’s benefits justify the cost in my case. However, that’s not to say that everybody would find this particular credit card worthwhile. For example, if you don’t fly often, it’s probably not a good credit card for you.
The bottom line
Credit card annual fees typically do get you some additional perks when compared to credit cards that don’t charge annual fees.
Paying an annual fee to get access to a particular credit card’s perks can be well worth the cost if and only if you take advantage of the perks in a way that the value you receive is greater than the card’s fee. So before you consider signing up for a credit card that charges an annual fee, it’s important to take a few minutes and do a bit of a cost-benefit analysis to determine if it’s a good value for you.
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