Should I Pay an Annual Fee for a Credit Card?

Reader question: I’ve got a couple of cards with annual fees (AF), but I get similar benefits on no annual fees (NAF)?

Thanks for the question! The answer is probably not. I find annual fees to be an anachronism, started in a period when having a credit card wasn’t as common and was more like a club membership.* Over time, I think that most annual fees, as well as foreign transaction fees (also known as the “because we can” fee), will disappear. Note that I said “most,” not “all,” since certain cards offer unique benefits that must be paid for. Most of what you need, though, can likely be covered with NAF cards. A combination of my favorite “easy” everyday card, the Citibank 2% Cash Back Card*, with the Capital One Quiksilver Card or a Discover Card should more than get the job done.

Why yes, I am a member...

Why yes, I am a member…

There are, of course, exceptions to the rule, which fall into a couple of categories. The annual fee serves as a governor on how many people get access to the benefits. The bigger question is, are they worth it to you?

The “Unique Feature” Card

Still waiting for the card that will mow my lawn, though.

Still waiting for the card that will mow my lawn, though.

Sometimes, a card has a benefit that is unique to a provider that you use frequently. For instance, if you fly Delta frequently and like having free bags, then it’s worth paying for the annual fee. My favorite hotel card, the IHG Rewards Card, gets you a free night at any Intercontinental property every year for the $49 annual fee. That is worth it, as long as you use the free night, of course. The only cards that I think will be able to maintain an annual fee long-term, however, are the high-end ones, Amex Platinum and Citi Prestige, which offer big bonuses and lounge access.

The “Big Sign-Up Bonus” Card

Attribution: Jericho

Attribution: Jericho

This is strictly a hit-and-run situation. There are a number of cards that will give you $400+ just to sign up for the thing and hit a small minimum spend level. Most of them have annual fees but, in many cases, the fees are waived for the first year. Several cards that I would never use on a day-to-day basis, including the Citi Prestige or Capital One Venture Cards, are cards that don’t necessarily offer the best bonuses for spending but offer good sign-up bonuses.

Why Not to Get a Particular Card

There are plenty of reasons not to get a given card.

  • Don’t waste your time if you’re not going to use the best benefits. For example, if you live in Atlanta, an American Airlines card probably won’t do you a lot of good. Likewise, the Chase Sapphire Card has a good sign-up bonus, but if you have no intention of transferring the points to a Chase partner, it’s just not worth your time.
  • Status. The Chase Sapphire Card, for some reason a blogger favorite, is made of metal. The Amex Platinum Card is one of the most prestigious “high-end” cards. The Visa Black Card is cool-looking. Etc. If you’re going to use the benefits, that’s great (although the Visa card really doesn’t have any). But how often are you going to be showing off your plastic?

Bottom Line: Before you pay an annual fee to a credit card company, make sure that you actually need to do so.

 

 

*American Express will tell you that one of the most cherished features of their cards is the “Member Since” date in the bottom right-hand corner of the card. Somehow, it’s seen as a status symbol.

**I had a conversation the other day with a friend about the Citibank Double Cash card. He had a family member who is using a 1% card and is just sticking with it due to inertia. Please don’t be that person; the credit card companies love it. It takes about 5 minutes to apply and the return on your time investment is huge. While I always like when people apply through the “cash back”  banner at the bottom of the card page, there is certainly no need to do so. But don’t let the banks give you any less than they have to.

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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!

1 comment

    • Fauzia Rashid on January 7, 2016 at 11:09 am
    • Reply

    Hi

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