MilesForTwo

Annual Fees – Are they worth it?

This is a question I’ve debated about for a while. The answer is: it depends.

What factors should I consider before signing up for a card with an annual fee? Here are my thoughts:

First Year Waived

If annual fee is waived during the first year, this is a huge plus. This means you can earn the sign up bonus and if you don’t like the credit card a year later. You can cancel it before the annual fee hits.  Furthermore, banks don’t want to lose customers. If you call to cancel the credit card, they will sometimes give you a bonus to keep the card open. This is called a retention offer. These retention offers vary, but they can range from providing a statement credit that covers the cost of the annual fee or a bonus for spending more on the card. Either way, this may convince you to keep the card open.

 

Benefits

The benefits you get from the card should also be taken into consideration when contemplating the cost of an annual fee. For instance, the Chase IHG credit card gives you one free night every year and the annual fee is $69. Given that some hotels might very well cost over $200, this annual fee seems worth it. In essence, you’re paying $69 for a $200 hotel. That’s a 66% discount. Of course there’s always the question of whether or not you would have actually spent that money on a hotel to begin with. I can’t really answer that question for you. Plus travel hacking isn’t about travelling for free, it is more about travelling at a discount.

Another example where benefits outweigh the cost of the annual fee is the Citi Prestige card. This card has whopping annual fee of $450. This annual fee can be reduced to $350 if you have a bank account with Citi Bank. Now, I would never be one to pay $450/year for a credit card, but this one has benefits that (in my opinion) make the annual fee worth it. One of these benefits is an airline credit of $250/year. This means you can buy an airline ticket for $250 and Citi will give you a $250 statement credit. But wait there’s more! The Citi Prestige will allow you to book four nights at a hotel and the fourth night is free. They also provide you with access to airport lounges and will reimburse you for getting World Elite ($100), which gives you TSA Precheck. These are just a few of the many perks and benefits that you’ll get from a $450 annual fee. $450 seems like a steep price to pay, but for those who travel frequently it could be worth it.

Other benefits to consider on cards are things like: no foreign transaction fees, purchase protection, primary car rental insurance, etc.

 

Everyday Spending

Some card provide certain bonuses for spending at certain locations. For instance, the American Express Everyday Preferred card gives you 3x back at grocery stores. Whereas, the Citi Premier gives you 3x back on travel and entertainment. If there’s a certain category that you spend a lot in, paying an annual fee for a card that gives bonsues in the category could make sense.

 

Downgrade/Cancel the Card

If in the end you don’t want to pay the annual fee, you can always cancel or downgrade the card to a no annual fee version.

 

As the saying goes, you have the pay to play. You’ll have to make your own cost benefit analysis and decide whether you will utilize the benefits enough to make up for the costs.