Should You Ever Pay a Credit Card Annual Fee?

A lot of other personal finance nerds call people who pay an annual fee on a credit card “stupid”.

I don’t agree.

Credit cards with annual fees are not necessarily evil—they can, in fact, be a great deal…for the right person. If you:

• carry a balance on your credit cards and pay interest or
• on average, spend less than $1,000 on your credit card every month,

a credit card with an annual fee probably is not for you. So if this is you and your current card has an annual fee, think about switching credit cards.

On the other hand, if you:

• charge $15,000 or more on your card each year and/or
• travel a lot

certain cards with annual fees may be good bets.

For example, American Express offers two versions of it’s Blue Cash credit card. One card has no fee, the other has a $75 annual fee. The card without the annual fee pays

• 1% cash back on all purchases
• 2% cash back on gas and department stores
• 3% cash back at supermarkets

The card with a $75 annual fee pays

• 1% cash back on all purchases
• 3% cash back on gas and department stores
• 6% cash back at supermarkets

AN EXAMPLE OF WHEN A FEE CARD IS BETTER

Here’s an example of why credit card annual fees aren’t always bad. Using the American Express Blue Cash Everyday Card as an example, here’s how the rewards shake out for people based on how much they spend and which version of the card they choose. (Keep in mind both examples assume the cardholder never pays interest!)

OTHER BENEFITS TO ANNUAL FEE CREDIT CARDS

Besides accelerated rewards, credit cards with annual fees may provide other benefits, particularly to frequent travelers…a classic example is the $450 American Express Platinum Card, which offers members access to airport lounges, concierge service, hotel reservation guarantees, and more. Other travel and mileage rewards cards offer perks like free companion tickets, priority boarding, and priority status for getting first class or hotel room upgrades.

• Search for and compare credit cards now.

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