Buzz
Credit card benefits can be enticing, but how do you confirm that they make the annual fee worthwhile? These yearly costs can be considerable—research from 2019 shows that the average card fee is about $110 annually, though some cards charge significantly more, like the $550 fee for the Amex Platinum Card or Chase Sapphire Reserve. Consider these factors when evaluating if these high fees are truly worth it.
Is there an introductory bonus?
An introductory bonus can be a great way to offset the annual fee. For instance, the Chase Sapphire Preferred card has a $95 annual fee, but it offers an 80,000 point sign-up bonus, which is approximately $1,000, if you spend $4,000 within the first three months. However, a word of caution: You should only spend that amount if you're able to repay it almost immediately and avoid accruing interest. Otherwise, the bonus may not be worth the effort.
Is it possible to justify the annual fee without an introductory bonus?
You should also consider how many points you can accumulate based on your current spending habits. Does the card provide bonus points for spending categories you actually use? What is the cash value of those reward points? (The Points Guy offers a fantastic guide on the redemption value of reward points here). If you don’t think you’ll spend enough to make up for the annual fee, reconsider applying for the card. For example, without a welcome bonus, you’d need to spend a total of $4,750 annually on dining and/or travel to cover the $95 annual fee for the Chase Sapphire Preferred, according to CNBC. If that sounds feasible, it’s likely worth it.
What benefits does the card offer?
The Chase Sapphire Reserve card (the premium version of the Sapphire Preferred) is a prime example of a card with a steep fee that could be worthwhile for frequent travelers. The card costs $550 annually, but it comes with $300 in travel credits, reducing the effective cost to $150, which can be further offset by numerous additional perks, such as airport lounge access, reimbursement for Global Entry and TSA Pre-Check application fees, and more.
In general, premium cards may offer benefits like complimentary hotel stays, free checked baggage, travel insurance, priority boarding, or various other perks. Consider the cash value of these benefits and determine if the annual fee is worth it for your needs.
Are you loyal to a specific brand?
If you're a frequent business traveler who often stays with a particular hotel chain, paying a fee to earn extra points may be worth it, even if those rewards are limited to that brand (co-branded cards for a specific airline are a prime example). Many branded cards offer no annual fee and still provide generous rewards, so it’s worth doing some research.
Don’t chase rewards if you carry a balance
If you consistently carry a balance on your credit card, rewards cards may not be the best choice for you. These cards typically come with higher interest rates, and a single late payment can easily cancel out any rewards you’ve earned.
