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Why do some credit cards have annual fees? For the most part, paying an annual fee for a credit card often means getting upgraded perks. After all, issuers need to make their premium cards worth it if they want you to pay for it. If you regularly use the additional features offered by an annual fee credit card, you’ll more than earn back the value you’re paying for.
Here are the common benefits of an annual fee credit card and a breakdown of whether this kind of card is right for you.
Everyone has different priorities and financial needs, so to answer this question, consider the following:
If you don’t have good credit, you’ll likely need to settle for a secured card. These are solid credit-building options that come with a small annual fee of up to $49. With timely payments, you can improve your credit and get a decent rewards card. But if your credit score is great, you can easily get approval for unsecured credit cards with more worthwhile rewards, but a higher annual fee.
Credit cards with an annual fee often have a higher rewards rate than their no-annual-fee counterparts. Paying a higher fee could be worth it, however, if you often take advantage of the perks. For example, a cash back card with a lower annual fee might let you earn 3% cash back at US supermarkets, but a card with a higher fee might let you earn 6% cash back. Hotel cards are also known for earning higher rewards than similar no-annual-fee cards, whereas airline credit cards often earn the same rewards rate.
Earning a higher rewards rate is definitely better than earning less, but you need to make sure you spend enough money so that the rewards you earn offset the annual fee and let you earn more than you would with a no-annual-fee version of the card. Otherwise, you better go with a no-annual-fee card.
Cards with an annual fee can sometimes be worth it solely because of their signup bonus. Some travel credit cards offer a bonus worth between $500 and $1,000 or more in travel purchases. For a card with an annual fee of less than $99, this is definitely a good deal.
Cashback credit cards with an annual fee, rarely offer impressive perks. In most cases, you get to earn a slightly higher signup bonus or a slightly higher rewards rate. But if you get a travel credit card, you will be surprised.
Some of the perks you can get include, free checked bags on a particular airline, airline fee credit, priority boarding, lounge access, Global Entry or TSA PreCheck application fee credit, hotel or airline elite status, travel insurance and more.
Anyone who travels often or anyone looking to get better credit card perks should consider a card with an annual fee. But you also need to be a responsible cardholder because this type of cards often come with higher interest rates.
The benefits and drawbacks mostly depend on the kind of card you get. In addition to rewards cards, you can also find secured cards requiring annual fees. These cards will have different perks and features than an unsecured card with an annual fee.
Since secured cards can be considered a niche within cards with an annual fee, we’ll focus on features of unsecured credit cards. Here are some of the features you’ll often find on various annual fee unsecured credit cards:
Because there’s a variety of credit cards with an annual fee, there are several reasons this type of card may not be a good choice for you. For example, you might not want a card with an annual fee if you:
There are excellent no-annual-fee credit cards you can consider instead.
Credit cards with an annual fee offer better perks and features than their no-annual-fee counterparts. To make paying the annual fee worth it, pay off your balance on time and use the perks to offset the card’s cost.
If you’re not sure whether paying an annual fee for your credit card is the right option, check out some best no-annual-fee travel credit cards or compare other credit cards until you find what suits you best.
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