Are Annual Fees Worth It?

I can’t tell you how many times someone looks at me like I have five heads when I tell them I pay annual fees to have credit cards. For most people, the idea of paying an annual fee seems counter intuitive, however if you can outweigh the fee by savings it makes perfect sense! In this post I will focus on the most common questions I get asked, “What is the point of an annual fee?”, “Why should I pay a fee when there are plenty of free cards?”, and “What are my options if I no longer find value in the card?”.

What is the point of an Annual fee?

Annual fees typically range from $95 for starter cards to $550 for your “premium” credit cards… We wont even mention the “ultra premium” American Express Centurion card which comes with a $7,500 initiation fee + $5,000 annual fee!! Annual fees allow credit card companies to provide you deals and promos that non card members don’t have access to, such as “Spend $200 get $50 back at Amazon”. Depending on your card, you may also receive upgraded status that non card members would have to spend money and time to achieve.

If we look at the American Express Platinum Card(one of my 3 keeper cards) and its $550 annual fee, I personally find value in the status and offers that are loaded every month more than the actual point earning potential. I have saved over $700 this year alone on my AMEX Platinum! The American Express Platinum Card comes with a laundry list of benefits including: Hilton Honor’s Gold Status, Marriott Bonvoy Gold Elite Status, National Emerald Executive status, $200 Airline incidental credit, cell phone protection, and much more! Couple that with the current intro bonus of 100,000 Membership Rewards points and 10X at grocery stores, this card provides you with enough value to cover OVER 4 YEARS of annual fees.

Why should I pay a fee when there are plenty of free cards?

As discussed above, annual fees are often shied away from… but if you understand all of the benefits, it is well worth it! The other day I got asked, “What cash back or rewards card should I get?”. The simple answer is… that depends but I will say stay away from cards with no annual fee, if you truly want to maximize your earnings. Most free credit cards give you 1 point across all spend or 1/1.5% cash back for no annual fee, while even a modest $95 annual fee for the American Express Blue Cash Preferred, can unlock things like 6% cash back on groceries and streaming, 3% on gas, and 1% on all other purchases. Assuming you spend $6,000 on groceries in a given year, you are going to earn $360 cash back in comparison to the $90 on the Capital One Quicksilver card(1.5% cash back on all purchases). If we compare the two, even with the $95 annual fee, you are still profiting an additional $175 without even touching your other multiplier benefits!

What are my options if I no longer find value in the card?

If this past year has taught us anything, it’s things change! Whether it be your travel plans, kids leaving the house, or the addition of family members, you always want to have the ability to maximize your earning potential and mitigate your spending. Most cards today have a downgrade path to either a lower annual fee or no annual fee card, allowing you to adjust your points earning strategy as life events happen. For example, you can downgrade the American Express Platinum Card to the American Express Gold Card, if you find yourself traveling less and spending more money at restaurants and grocery stores.

A prime example of this is something I personally did about 6 months ago, downgrading my Chase Sapphire Preferred to the Chase Freedom Unlimited. To be honest, I was intro bonus hunting when I signed up for the $95 annual fee Chase Sapphire Preferred, which allowed my wife and me to surprise my mom for thanksgiving… ALL ON POINTS! After two years, I didn’t see the value in the CSP anymore so I decided to downgrade to the no annual fee Chase Freedom Unlimited. While I recommend downgrading cards to eliminate annual fees or take advantage of new point structures on other cards, cancelling a credit card is THE LAST THING I WOULD RECOMMEND DOING! Stay tuned to future posts to see why!