Credit Cards With Annual Fees: When They're Worth It

For money-conscious and credit-savvy consumers, the idea of paying an annual fee for the privilege of carrying a credit card may sound absurd. Annual fees can range anywhere from $39 to $450 and higher, and when you consider the number of credit cards that don’t charge an annual fee, it just doesn’t make sense to pay an annual fee if you don’t have to. So why, then, would anyone opt for a credit card with an annual fee over one without?

The answer: rewards, and lots of them. Typically credit cards that carry annual fees are almost always rewards cards. This doesn’t mean that all rewards cards carry annual fees, but those that do often offer more generous rewards with higher points, miles or cash-back incentives. Many also include exclusive membership benefits that provide access to airport lounges and other perks like complimentary concierge services, free airline passes, discounted hotel and car rental rates, hotel upgrades and reservation guarantees, priority boarding and first-class upgrades — the list goes on.

The more generous the rewards, the more tempting they are. Don’t let that fool you, though. Credit cards with annual fees aren’t for everyone.

When Annual Fees Are a Bad Idea

If you tend to carry a balance on your credit cards every month, a credit card with an annual fee is probably not a good idea. Along with annual fees, rewards cards also tend to carry higher interest rates. The interest charges alone would wipe out any reward incentives that might have made the annual fee worth the cost.

When Annual Fees Make Financial Sense

Credit cards with annual fees aren’t always a bad deal. For the right person, an annual fee credit card may actually be worth the fee and a great deal to boot.

If you pay your balance in full every month, charge more than $10,000-$15,000 a year on your cards, or travel frequently — paying the annual fee may make financial sense. Here’s how to make the most of your card and its benefits.

Earn the Right Rewards for Your Lifestyle

For an annual fee to be worthwhile, the rewards need to fit your lifestyle. For example, if you charge thousands of dollars on purchases but rarely fly, a rewards card that offers free airline tickets, extra travel miles, complimentary use of airline lounges, priority first-class upgrades and free baggage checks wouldn’t be such a great deal. A rewards program with 3 percent to 6 percent cash back on all purchases and no limits, however, would be a much better fit.

Use Rewards to Offset the Annual Fee

This sounds like a no-brainer but if you earn rewards and never use them, you’re wasting money on an annual fee. If you’re going to pay an annual fee, take advantage of the rewards and use them.

Maximize Your Rewards

To make sure your rewards offset the cost of any annual fee you might pay, you’ll want to maximize the rewards you do earn. This means using your card, and using it a lot. You should never spend more than you normally would — and ideally, no more than you can pay off each month — just to rack up rewards, however. Remember, annual fee credit cards aren’t right for everyone. And unless you’re a big spender, paying an annual fee for rewards — no matter how great they are — isn’t worth it if you aren’t able to earn the rewards you’re paying for.

A word of caution when choosing a credit card with annual fee — or any credit card for that matter — you should always shop around and compare credit card offers to make sure you’re getting the best deal. Pay close attention to the introductory terms. Many cards will waive fees for the first year to make the offer more enticing. After the first year, the fees kick in and so you’ll want to make sure the rewards are still worth the fee in the long run.

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