When it comes down to it, credit card annual fees don’t have the best reputation. Unless you are already familiar with rewards earning credit cards, you may think that it’s a waste of money to pay an annual fee. While it may not always be worth paying the annual fee on a credit card, there are times that it is worth it.
Most miles & points earning credit cards have an annual fee – a fee that you pay yearly for the privilege to have (and hopefully benefit from) that credit card. The annual fee can be over $500! Additionally, you may have more than one card that carries an annual fee. While those fees can add up, are annual fees really worth it? I think they are, but you have know if they make sense for you!
Intro to Annual Fees
Annual fees are charges that the credit card issuer charges. There are a multitude of reasons that a credit card has an annual fee. The cover the issuer’s costs of the benefits the card has; such as travel credits, free nights, and so on. On some credit cards the benefits don’t outweigh the annual fee that is due each year. There are plenty of credit cards that give a huge value compared to the annual feel which I’ll get to later.
Real World Examination of When an Annual Fee is Worth It
Just in case you don’t believe me, let’s take a look at a credit card, it’s annual fee and the benefits it provides. I just signed up for the American Express Hilton Aspire card – one of the several cards American Express issues that carries a high annual fee ($450 in this case).
|150,000 point Sign-Up bonus||$750|
|Hilton Honors Diamond Status||$1,250|
|Total for First Year||$2,500|
I estimate that I am getting almost $2,500 in return for a $450 annual fee!!! Before you start yelling at me, let me explain how I get to this value.
- Hilton Honors points are worth about 0.5 cents each (150,000 x 0.005=750).
- Airline & Resort credits are $250 each.
- The value of Hilton Diamond status (which is Hilton’s top tier status) is worth about $1,250 to me; though others value it at over $2,000 – depending on how often one stays at Hilton hotels.
As you can see, this gives me a tremendous value! I originally overlooked this card as I already have an American Express Hilton Ascend card that gives me gold status (for an $89 annual fee). After one of my friends explained the benefits of the Aspire card, it makes nothing but sense to me and I’ll be likely cancelling the other card that gives me gold status.
What Annual Fees Am I Paying?
The American Express Hilton Aspire card isn’t the only card I have that I pay an annual fee on. In case you’re not quite convinced that pay an annual fee might be worth it, here’s a list of cards that I have which I pay an annual fee every year.
|Credit Card||Annual Fee||Approx. Value Received|
|Chase Sapphire Reserve*||$450||$500|
|Chase Hyatt Visa||$89||$200 (free night in category 1-4)|
|Chase IHG MasterCard||$49||$350 (free night at any IHG)|
|AmEx Hilton Ascend||$89||$200|
|AmEx Hilton Aspire||$450||$2,500|
|Alaska Airlines Visa||$49||$300|
Since I’m getting over $4,000 in value for paying under $1,200, I have no problem paying annual fees each year. As I mentioned I’m going to cancel the Hilton Ascend card since the benefits overlap with the (new to me) Aspire – hence I don’t see much value in keeping it.
I marked the Chase Sapphire Reserve card with an asterisk because my perceived value is different than the actual value I put on paper. I consider this card is an upsell from the Chase Sapphire Preferred card that I had in my wallet for a number of years before they introduced the Reserve. The Sapphire Preferred card has an $95 annual fee, and the points are worth 1.2 cents when redeemed for travel. The Sapphire Reserve card not only comes with a $300 annual travel credit but the points are worth 1.5 cents each. After the travel credit, there’s only a $55 difference in what I’m paying which makes the Sapphire Reserve card a no brainer! That comparison doesn’t even include other benefits such as airport lounge access!
Don’t be afraid of credit cards that have annual fees. Even those that have a higher annual fee can give you the most value. In fact, the cards that have the highest annual fee likely gives the highest value – in my case, they definitely do! Bottom line, annual fees are usually worth it and can save you much more money than the annual fee itself.
Check out what’s in my wallet to see what credit cards I am using this quarter!