Is an annual fee credit card worth the cost? A fee requirement often leads many people to quickly dismiss some credit cards, without giving them a serious consideration.
Deciding whether or not an annual fee is worthwhile varies from person to person and card to card. Yet, in many cases, it turns out the annual fee is actually totally worth it.
Here’s the best way for you to decide if it makes sense for you.
What are the total costs of having the annual fee credit card?
Credit card companies have to make money. Otherwise, there would be no credit cards. They make money primarily from:
- Interchange and processing fees every time a card is used from merchants
- Interest payments from customers
- Annual fees from customers
- Other fees and charges from customers
Did you notice how most of those fees are paid for by customers?
If you carry a balance from month-to-month, credit cards are generally not a good idea for you. That’s because credit card interest can go as high as 20.00% APR or more. And staying out of credit card debt is very important to your financial health.
However, if you pay off your card every month in full, you don’t pay any interest. And when you avoid overdraft on your credit limit, you avoid additional fees as well.
If you are a responsible card user and always pay off your balance in full each month, that is the time to consider a card with an annual fee.
Let’s take a look at the Chase Sapphire Preferred, considered by many to be one of the best cards for new travel hackers looking to get free travel. It has a $95 annual fee, which is waived for your first year.
If you don’t pay interest or other fees, the $95 annual credit card fee is the total cost per year to own that card.
What are the benefits of the card?
Now that we know how much the card costs per year, let’s take a look at the benefits. No annual fee credit card is worthwhile if you don’t get benefits from it, that’s the selling point.
Continuing to look at the Chase Sapphire Preferred, $95 per year is a lot. But if you can get more than $95 in value, it is completely worthwhile.
The Chase Sapphire Preferred card currently has a 50,000 signup bonus after spending $4,000 in the first 3 months you have the card. Then you get 2x points per dollar spent on travel and at restaurants, plus one point per dollar everywhere else.
The 50,000 point signup bonus alone is worth $500 in cash back. That is enough value to cover more than five years of annual fees!
However, using your points for cashback gets you the least value per point, at only 1 cent per point. If you use your points for travel, they are worth far more.
When you use Chase Ultimate Rewards points for travel through the Ultimate Rewards portal, you get 1.25 cents per point in value. That makes 50,000 points worth $625 in travel rewards.
But if you transfer to an airline partner, you can get even more value. 50,000 points are enough for a coach plane ticket to Europe from the United States or many other destinations. And those tickets don’t typically come cheap.
Do the benefits outweigh the costs?
You now know the cost of the card and the value of the rewards. Simple subtraction shows whether or not that card is worthwhile based on your spending habits.
I’m a serious travel hacker with 16 open credit cards, and a handful of those have annual fees. However, I have done the math and know that each card gives me more value than their cost thanks to free hotel nights and plane tickets. So to me, it is worthwhile.
Once I signed up for a card with a $450 annual fee. Although it was not waived the first year, the 100,000 American Airline miles I earned was enough to take me and my wife to Spain on round-trip tickets.
That trip alone made the $450 worthwhile. And I canceled the card after a year to avoid paying the fee again. But I had already received about $5,000 in value from the card, about 11 times the annual fee I paid when I opened the account.
If you are a frugal spender, you might find that it isn’t worthwhile. Or you may find that one card is a bad deal for you, but another is a good deal.
Maybe restaurants are not your thing, but you spend a lot of money on gas for your car. There are cards that reward fuel spending.
Some cards can even work together in tandem. If you have both a Chase Sapphire Preferred and Chase Freedom card, your Freedom points can be combined with your Sapphire Preferred points for even bigger rewards.
It all comes down to your personal spending habits, the value of the rewards attached to the card, and how that stacks up against the annual fee.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|