Is Your Credit Card Annual Fee Worth It?

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Credit card annual fees add an additional expense, but if you’re getting high value from your card, it’s usually worth paying. Whether it’s a travel credit card or a rewards credit card, annual fee cards often provide better benefits and higher reward rates than cards without an annual fee.

A credit card’s annual fee is a recurring charge billed once a year — typically either at the time of year when your account was opened or on the last day of the month when you were approved for the card. 

They range from under $50 for a basic cash-back or credit-builder card to upward of $600 and beyond for premium credit cards with luxury perks. Here’s what you need to know before choosing a credit card with an annual fee.

Why would you want a credit card with an annual fee?

Credit card annual fees usually translate to better rewards and perks.

For example, travel credit cards with higher annual fees tend to have more valuable benefits, including travel credits, airport lounge access, opportunities to transfer your credit card rewards to hotel or airline partners, or a multitude of travel protections to help avoid unexpected inconveniences. Reward cards with annual fees generally offer higher reward rates and better redemption options than their no-annual-fee counterparts.

On the other end of the spectrum, some cards offer few rewards or perks but still charge an annual fee because they’re geared toward people with lower credit scores. In this case, the main benefit is the privilege of having the card itself — and the opportunity to build credit by using it responsibly, which means paying on time while using the card regularly. 

If an annual-fee card is the only credit card you can qualify for, then it may be worth it to pay a fee for the credit-building opportunity — at least until you can qualify for better no-annual-fee cards. But we recommend looking at no annual fee alternatives like secured cards before committing to a card with an annual fee. 

Can the rewards cover the cost?

Paying an annual fee will add another expense to your budget. Depending on the size of the fee, that could mean less discretionary spending.

However, some credit cards cover this cost — and often surpass it — with their rewards and credits.

For example, compare the Blue Cash Preferred® Card from American Express and its no-annual-fee counterpart Blue Cash Everyday® Card from American Express. 

The Blue Cash Preferred has an annual fee of $95 ($0 intro annual fee for the first year) and features:

• 6% cash back at U.S. supermarkets (on the first $6,000 spent per year, then 1%) 
• 6% for select U.S. streaming subscriptions
• 3% at U.S. gas stations and on transit
• 1% for other purchases

The Blue Cash Everyday, which doesn’t require an annual fee, earns:

• 3% cash back at U.S. supermarkets (on the first $6,000 spent per year, then 1%)
• 3% on U.S. online retail purchases (on the first $6,000 spent per year, then 1%)
• 3% at U.S. gas stations (on the first $6,000 spent per year, then 1%)
• 1% for other purchases

Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit.

Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.

A good way to determine if a credit card annual fee is worth paying is to compare the value of the card’s rewards. 

The Blue Cash Preferred has an ongoing annual fee, but earns double the rewards of the Blue Cash Everyday for U.S. supermarket purchases.

If you were to spend $6,000 on groceries annually with the Blue Cash Everyday, you’d earn $180 ($6,000 x 0.03). If you were to spend the same amount with the Blue Cash Preferred, after taking its ongoing annual fee into account, you’d earn $265 (($5,259 x 0.06) – $95).

Even when accounting for the cost of the annual fee, the Blue Cash Preferred earns more. That’s also before taking the other bonus categories for U.S. gas stations, select U.S. streaming subscriptions and transit into account, so cardholders can expect to earn even more.

Annual fee cards also typically offer more options for redeeming your rewards. Many no-annual-fee cards restrict rewards to cash or statement credit redemptions, which can be great for those seeking simplicity. But travel and rewards cards with annual fees usually earn points and miles toward robust rewards programs with flexible options, like travel redemptions, transfers to airline and hotel partners, and more. 

For example, the no-annual-fee Chase Freedom Flex℠* lets you redeem your points for cash back or travel through the Chase Travel℠ portal at a 1 cent/point value, while the $95-annual-fee Chase Sapphire Preferred® Card* lets you transfer your points to 14 hotel and airline partners for award bookings that could potentially give you much more value for your points.

Does the annual fee work with your budget?

Potential cardholders also need to make sure that their spending habits fit the card. If you won’t use the card enough to cover the annual fee, one without a fee would be better. Here’s an example to consider:

If you have Credit Card A with a $95 annual fee that earns 3% cash back, you’d need to spend $3,200 annually to earn $96 cash back, just enough to cover the fee, but with only $1 profit.

Credit Card B earns 2% cash back but doesn’t have an annual fee. Spending $3,200 would earn $64, but that’s all yours. So for the same amount of spending, you’d end up earning more with the card that has a lower rate.

However, there will come a point where Credit Card A surpasses Credit Card B in terms of reward value, meaning a budget becomes more important. If you know how much you spend annually, you can compare which card would end up being more lucrative.