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Credit Cards with Annual Fees
18 Jun 2018

Credit Cards with Annual Fees: Are They Worth It?

75% of the American population have at least one credit card weighing down their wallet. That means that there are over 244 million credit cards in circulation today in the USA alone.

To meet the soaring demand for consumer credit, card companies have put out a plethora of card options for people to pick from. These varied cards offer different terms and fees.

Expanding on fees, one of the most common ones you’ll run into when getting a credit card is an annual fee. Not all credit cards have annual fees but those that do can have fees ranging from about $49 to $499.00.

So, is it worth it to pay that much money every year to have a credit card?

Our team’s answer to that question is it depends on your spending habits. Keep reading below to find out more on if credit cards with annual fees are worth getting

Consider the Sign Up Bonus

There is a lot of competition in the consumer credit market. Because of that, credit card issuers need to try and make their cards more attractive than the competition.

One of the main ways they do this is via instant gratification or “sign up bonus'”.

With a sign-up bonus, a credit card issuer will give you cash, points or some other valuable thing just for picking their card and spending a certain amount of money within a given period of time (typically 3 months).

The value of a sign-up bonus can change dramatically depending on if your credit card charges an annual fee. For example, a typical sign-up bonus for a card with no annual fees can be up to $200.00 or so. With a credit card that carries an annual fee, we’ve seen the value of a bonus go all the way up to $1000.00 for certain business cards.

That means, if your $1000.00 sign up bonus card charges an annual fee of $95.00, the annual fee essentially pays for itself for the next 10 years!

The only catch is, in order to get that $1000.00 bonus, you’ll likely need to spend around $6000.00 within three months. If you’re a business that might not be hard. For a casual consumer though, hitting the requirements to get that bonus could present a challenge.

Bottom line, credit cards with annual fees can be worth it if the sign-up bonus is attractive.

Rewards Currency, Points and Cash Back

Another excellent perk consumers can get with a good credit card is rewards currency. Rewards currency is basically the value a credit card gives back to you for the everyday purchases you make.

This currency can come in the way of points, cash back, miles, etc. You can then exchange those things for stuff you want including discounts on your credit card balance, a direct deposit into your bank account, flights, hotels, and more.

With credit cards that have annual fees, the percentage of rewards currency you get back on purchases is typically much higher. For example, a credit card without an annual fee may give you 1.5% cash back every day on grocery purchases up to $6000.00 per year.

A credit card with an annual fee may give you 4% every day up to $12,000.00 per year. If you buy a lot of groceries, an annual fee card would pay for itself.

Perks and Annual Rewards

Credit cards without annual fees come with a limited set of perks. Perks are things outside of rewards currency your card will offer you. These perks may include auto renter’s insurance, travel protection, purchase protection, and warranty extensions, such as you can get from Chase cards.

With annual fee cards, those perks are much deeper. Not only do you get the typical credit card perks, but many cards will give you things like airport lounge passes, priority boarding onto select flights, free TSA pre-screening, luxury gifts and bonus rewards currency on your card anniversary and more.

So, when considering a card with an annual fee, look at the combined value of its perks. If those perks are things you would typically be willing to pay for (or already do pay for) you can comfortably discount their value from the card’s fee.

Sometimes, the value of perks alone will pay off the annual fee of a credit card and then some.

Can Non-Annual Fee Cards Be Valuable?

Based on what you’ve read so far, we’re hoping to have impressed upon you the value an annual fee credit card can give you on the back end. This may leave you wondering if non-annual fee cards are worth your time.

The answer is again, it depends on your spending habits.

If you’re not interested in a larger sign-up bonus (or don’t feel you can meet the minimum spend requirements to get it) of an annual fee card, don’t care for the rewards currency percentages/categories they offer, and don’t feel the perks add value to your lifestyle, you’ll want to opt for a no annual fee credit card.

No annual fee cards still offer solid perks given their free price point. At the end of the day, you just need to weigh the long-term value of the card you choose and see which card best supports your lifestyle. One of our favorite no-annual-fee card providers is Discover. You can read more about the best Discover cards here.

Wrapping Up Credit Cards with Annual Fees

Credit cards with annual fees have a lot of consumers scratching their heads and asking the question, “Is this card worth it?”

Only you can answer that question. You can accomplish doing that by looking at your lifestyle and weighing all of the benefits an annual fee card brings to the table against how much it’s asking from you. If after taking a good look at the card, you feel the fee isn’t justified, keep looking for better fee cards or opt for a free one.

Think hard, consider carefully, and pick whichever credit card works for you!

Are you in the process of considering getting a new credit card? If so, Bonsai Finance can help.

Our team has curated a list of preferred credit cards you can pick from to narrow your search. These cards offer good benefits and come with low annual fees!

Check out some of our best credit card suggestions by clicking here now.