Is It Smart to Get a Credit Card With an Annual Fee?

Find out if it's worth it to pay a credit card annual fee.

Choosing a credit card can be a confusing process, with different providers offering appealing rewards, sign-up bonuses and other perks that can tempt you to quickly sign on the dotted line. Before you do, make sure you check for information about the card’s APR, grace period and fees, including whether or not you will be charged an annual fee. Not every credit card charges an annual fee, so you will need to decide if the advantages that come along with an annual fee card are worth the cost.

Keep reading to find out if it’s ever worth it to open a credit card with an annual fee.

What Is an Annual Fee?

An annual fee is the amount you must pay each year to have the credit card. Some credit cards charge consumers a yearly charge simply for the privilege of having its plastic in their wallet, whereas other credit cards do not charge an annual fee. The fees vary based on the type of credit card you choose. With the payment of the annual fee, a consumer might earn additional perks or get a lower APR rate on their card. Examples of the perks you might get with an annual fee credit card include:

  • Rewards: Airline miles or cash-back rewards
  • Travel and purchase insurance: Including car rental insurance and extended warranty coverage
  • No foreign transaction fees: No fees for transactions made abroad

Annual fees typically range from $39 to $95, but some credit cards will charge fees as high as $450. Some cards waive the annual fee the first year but charge you each year thereafter. Make sure to read the fine print so you know what to expect.

Read This: Best Credit Cards With No Foreign Transaction Fees

When Is an Annual Fee Worth It?

An annual fee could be worth it if you are able to offset the cost with the amount you get back, either in rewards, cash back or other perks. For example, the Capital One Venture travel credit card allows you to earn 2x miles on every purchase and 10x airline miles on hotels booked through Hotels.com. In addition, you’ll receive up to a $100 credit for Global Entry or TSA Precheck. The annual fee for the card is $95, so if you plan on using this perk, the card will pay for itself. You’ll earn miles toward flights as well, so this card could benefit frequent travelers. If you don’t travel enough to earn more than $95 in rewards each year, this card might not be worth it for you.

Even if you are not a frequent traveler, you might be able to benefit from an annual fee card that offers cash back. For instance, consider the Chase Sapphire Preferred Credit Card, which also charges an annual fee of $95 after the first year. With this card, you earn two points for every $1 spent on travel and dining and one point on every $1 spent on other purchases. Each point is worth 1 cent in cash back, which means that 100 points equal $1 in redemption value. So, if you spend more than $5,000 annually on dining and travel, you’ll earn over $100 in cash back, which will cover the annual fee. Or if you spend over $10,000 annually on other purchases, you’ll also make back the annual fee and then some.

Should You Get a Credit Card With an Annual Fee?

There are certain people who can recover the cost of an annual fee credit card, but at the end of the day, there is no true difference between any no-annual-fee credit cards and credit cards with fees, except that one costs you more money. By maintaining a strong credit history and comparison shopping for credit cards, it is more than likely that a consumer can find a credit card with no annual fee plus all the perks and rewards they like.

Not happy with your credit card? Click to see how to cancel your credit card without hurting your credit score.

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