When are annual fee credit cards worth it?

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In a Nutshell

An annual fee might be something you’d like to avoid when you’re looking for a credit card, but it’s not always a bad thing. In many cases, paying an annual fee can be worth it if your ultimate goal is to maximize your cash back, earn travel rewards or earn a valuable sign-up bonus. It might also be worthwhile if you’re new to credit or need to rebuild credit.
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Not everyone will consider an annual fee credit card to be worth the cost. But that fee could be worth it if you can get more value out of the card than you pay in.

Most people would probably prefer not to pay annual fees for their credit cards. After all, who wants to pay an extra cost just for the right to use a card?

But weighing a card’s benefits and costs usually isn’t so easy. If a card charges an annual fee, there’s still a chance you can get more value from it than a card with no annual fee. Depending on how you plan to use the card, you might benefit from paying that upfront cost.

Let’s walk through several cases where it might benefit you to pay an annual fee. Just remember that your decision will ultimately come down to your specific needs and situation.

For cash back rewards

If you want to earn cash back from a credit card, you might not like the idea of paying an annual fee before you earn those rewards. Why would you want to pay an upfront cost that will require you to earn cash back just to break even?

In some cases, though, a cash back credit card with an annual fee might provide more value than a card with no annual fee. If you spend enough in certain high-earning bonus categories, you might be able to earn more rewards than you’d get from a card with no annual fee.

For example, the Capital One® Savor® Cash Rewards Credit Card offers 4% back cash back on dining and entertainment, as well as on streaming services; 3% at grocery stores and 1% on all other purchases. The card’s annual fee is $95. So you’d have to spend $2,375 on dining and entertainment every year (or nearly $198 per month) just to break even on the annual fee.

But someone who loves to attend concerts or enjoy nice dinners might be able to hit that threshold easily and find great ongoing value in those 4% bonus categories.

For travel rewards

If you want to maximize your travel rewards with a credit card, then there’s a good chance you’ll have to pay an annual fee. While it’s possible to get good value from a card with no annual fee, an especially powerful travel rewards credit card can carry an annual fee of hundreds of dollars.

But that fee is often worth it if you’re a frequent traveler and can earn enough in travel rewards to redeem for the cost of flights, hotel stays or other forms of travel. Similarly, a few travel perks may cover an annual fee by themselves, depending on how often you use them.

Getting value from points and miles

For some travelers, simply earning points and miles on purchases and then redeeming for travel purchases can provide excellent value.

For example, the Chase Sapphire Preferred® Card offers two points per $1 spent on travel and three points per $1 spent on dining (and five points on travel booked through Chase Travel℠). The card also offers three points per $1 on online grocery purchases and select streaming services, plus one point per $1 spent on all other purchases. Those points are worth 1.25 cents each when redeemed for travel through Chase. Depending on how you typically spend and redeem points, you might get more than enough value every year to make up for the card’s $95 annual fee.

People who are loyal to a particular airline or hotel brand can get value from a travel card, too. The Marriott Bonvoy Boundless® Credit Card offers six points per $1 spent at participating Marriott Bonvoy hotels, three points per $1 spent on combined restaurant, gas station and grocery store purchases (on up to $6,000 spent each year), and two points per $1 spent on all other purchases. If you earn enough points to redeem for an award night, you might save enough money to make up for the card’s $95 annual fee.

Take a look at our latest point valuations to see what your credit card points and miles are worth.

Getting value from travel perks

A collection of credit card perks can justify a card’s annual fee even before factoring in any savings from point or mile redemptions. Sometimes, these benefits have clear, specific values that can immediately make up for some of the cost of an annual fee. But others are only valuable depending on whether (or how often) you intend to use them.

For instance, the Alaska Airlines Visa Signature® credit card offers cardholders an annual companion fare for direct Alaska bookings, starting at $122 ($99 plus taxes and fees of at least $23), after they spend $6,000 or more on purchases within the prior anniversary year. If you ever buy Alaska tickets with a family member or friend, the discount from that ticket could save you much more than the card’s $95 annual fee.

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Other travelers might prefer perks that don’t necessarily appeal to all potential cardholders. The ultra-premium Platinum Card® from American Express is known for its complimentary airport lounge memberships, but not everyone likes to visit a lounge at the airport. For those travelers, the card’s other perks and rewards might not justify its eye-popping $695 annual fee.

For earning a sign-up bonus

Some rewards credit cards offer sign-up bonuses that can cover the cost of an annual fee, or even multiple years of annual fees. As long as the spending requirement doesn’t fall outside of your usual habits, earning a sign-up bonus can be a straightforward way to make sure your annual fee is worth it.

Take the Capital One® Savor® Cash Rewards Credit Card, which offers a $300 cash bonus when you spend $3,000 on purchases in the first 3 months after opening your account. This card also comes with an annual fee of $95. So if you can earn the sign-up bonus, you would have earned enough value to outweigh the cost of the annual fee for the first three years of card membership.

Travel credit cards tend to offer their bonuses in the form of points or miles, not cash — but the potential bonus values are often higher. The Chase Sapphire Preferred® Card offers 60,000 bonus points when you spend $4,000 on purchases in the first 3 months after account opening.

For building credit

If you’re looking to build or rebuild your credit, a credit card isn’t a bad place to start. And while just carrying around a credit card with an annual fee won’t actually help you build credit, using any credit card strategically — such as by making on-time payments and keeping your credit utilization low — can.

But cards specifically made for building credit may come with an annual fee. And while we won’t blame you for preferring a credit-building card without an annual fee, not every issuer offers them — and even those that do might only approve you for a card with an annual fee.

If that’s the case, the opportunity to add positive credit activity to your credit reports could be worth the cost. And if you’re able to build credit, you might eventually be able to get approved for a no-annual-fee card, or one that offers rewards that outweigh the cost.

If you do end up paying an annual fee and want to make sure it doesn’t go to waste, focus on the things that can help build your credit profile — like keeping your credit utilization low, making on-time payments and considering other factors that may affect your scores.

What’s next?

No matter what kind of credit card you’re looking for, it’s not necessarily in your best interest to find a card with no annual fee. Depending on what you’re looking for and can afford, a card with an annual fee might give you more value in the long run.

Before committing to a card with an annual fee, just make sure you have a clear idea of a card’s pros and cons, and then settle on a card that fits your spending and redemption habits. No matter a card’s worth on paper, it won’t be right for you if you’re not able to get regular value from it. Otherwise, you might end up paying an annual fee with little benefit to show for it.