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Folks new to our hobby sometimes shy away from credit cards which charge an annual fee. They may want to spend as little as possible to earn free travel, or might not feel paying a fee is worth it.
But those who’ve been collecting miles & points for a while know that you’ll often get more Big Travel by keeping cards with an annual fee. And sometimes even make a profit!
I’ll share some examples of when it might make sense to pay an annual fee, and show you what to consider before you cancel a card!
Cards That Waive the Fee for the 1st Year
Applying for cards with the 1st year annual fee waived is a no-brainer!
You’ll often earn a big sign-up bonus after completing minimum spending requirements. And you’ll enjoy card perks and earning miles & points without having to pay extra.
Most annual fee cards do NOT add foreign transaction fees, so consider those savings if you travel abroad frequently.
Banks waive the annual fee for the 1st year as an incentive for folks to try out their card. I always recommend evaluating a card for at least ~10 months before you decide whether to keep it for another year.
It’s Quick & Easy to Cancel
If paying the fee is NOT worth it for you, it’s not difficult to cancel your account. Just call the number on the back of your card (and some banks, like Barclays, Chase, and Citi, allow you to cancel by sending a secure message online).
You will NOT get a hard sell or guilt trip from the banks. And occasionally, they may offer extra incentives to keep the card, like waiving the fee for another year or bonus points.
That said, you may decide it’s worth paying the annual fee for the Big Travel and extra benefits the card offers. Currently I’m paying an annual fee for my Chase Sapphire Preferred and Citi Prestige card, among others. And Emily is paying an annual fee for her Chase Ink Plus.
1. Example – Chase Ultimate Rewards Cards
But in order to transfer Chase Ultimate Rewards points to airline, hotel, and rail partners, you need to have at least 1 of their annual fee ($95) cards:
- Chase Ink Bold (no longer available)
- Chase Ink Plus
- Chase Sapphire Preferred (annual fee waived for 1st year)
Without 1 of these cards, you’re limited to redeeming Chase Ultimate Rewards points for travel or cash back at a rate of 1 cent per point.
You’ll get far more value from transferring Chase Ultimate Rewards points to travel partners like Hyatt, Southwest, or United Airlines.
You’ll continue to have the flexibility of transferring points to travel partners, and can enjoy great benefits, like primary rental car insurance and trip delay reimbursement with the Chase Sapphire Preferred.
That’s worth at least $95 a year to me!
Note: Read my post about how to avoid losing your Chase Ultimate Rewards points if you cancel a card!
2. Example – Citi ThankYou Cards
The $95 annual fee is waived for the 1st year. Is it worth keeping beyond that?
Like Chase Ultimate Rewards, you can only transfer Citi ThankYou points to airline and hotel partners like Singapore Airlines and Hilton if you have an annual-fee card. In this case, they are the Citi ThankYou Premier, Citi Prestige, or Citi Chairman cards.
Other no-annual-fee cards earn Citi ThankYou points, like the Citi ThankYou Preferred. But you can’t transfer points to travel partners unless you have 1 of the cards mentioned above!
There are other good reasons to keep the Citi ThankYou Premier. It’s got terrific bonus categories, including:
- 3 Citi ThankYou points per $1 you spend on travel (includes airlines, hotels, public transportation, and gas stations)
- 2 Citi ThankYou points per $1 you spend on dining and entertainment (includes concerts, movies, and sporting events)
Note: Before you cancel a Citi ThankYou point earning card, read my post on how to avoid losing your points!
3. Example – Hotel Cards With Free Annual Nights
There are number of hotel credit cards which waive the annual fee for the 1st year (and offer excellent sign-up bonuses!).
After the year is up, you will pay an annual fee, but they soften the blow by giving you a complimentary night in exchange for renewing the card!
Plus, many hotel cards offer elite status, which can save you money on Wi-Fi, breakfast, and room upgrades.
- Chase Hyatt – Receive a night at a category 1 to 4 Hyatt hotel each year on your card anniversary (annual fee $75, comes with Hyatt Platinum status)
- Chase IHG – Receive a night in ANY IHG hotel each year on your card anniversary (annual fee $49, comes with IHG Platinum status)
- Marriott Rewards® Premier Credit Card – Receive a night at a category 1 to 5 Marriott hotel each year on your card anniversary (annual fee $85, comes with Marriott Silver status)
By using your annual free nights wisely, you can more than offset (sometimes by hundreds of dollars) the annual fee on these cards! They’re definitely worth keeping!
Not bad for spending $75 on the annual fee!
Cards That Do NOT Waive the Fee for the 1st Year
Lots of folks apply for cards that do NOT waive the annual fee for the 1st year, usually because there’s a valuable sign-up bonus.
Some of these cards charge annual fees in the hundreds of dollars. But in exchange, you’ll have access to benefits like airport lounge access, statement credits, and free hotel nights or checked bags that could make paying the fee worth it for you!
Depending on your travel style, you could even come out ahead by making the most of the perks your card offers!
1. Example – Citi AAdvantage Executive
There’s a $450 annual fee, and it’s NOT waived for the 1st year.
Initially, you’ll more than make up for the annual fee with 75,000 American Airlines miles. They’re worth potentially thousands of dollars depending on how you use them.
For example, you could use 75,000 American Airlines miles for 3 round-trip coach tickets within the continental US, Alaska, and Canada. That could be worth $1,500 or more!
Or you could splurge on a 1-way First Class ticket to Europe and have miles left over! For example, a First Class award ticket from Chicago to London in August costs 62,500 American Airlines miles and ~$6.
If you paid cash for the exact same flight, it would cost nearly $11,000!
Besides the valuable sign-up bonus, this card comes with excellent perks that can make your travel much more comfortable and save you money, including:
- American Airlines Admirals Club membership (worth up to $500) – access Admirals Club lounges, (you don’t have to be flying American Airlines!) and bring your immediate family or up to 2 guests traveling with you
- First checked bag free (for you and up to 8 companions traveling on the same reservation) on American Airlines and US Airways flights
- 25% discount on in-flight purchases (like food, drink, and headsets) on American Airlines and US Airways flights
- Priority check-in, security (where available), and boarding
- 10,000 elite-qualifying miles if you spend $40,000 or more on the card in a calendar year
So the real question is, are these perks worth spending $450 for in your 2nd year of having the card and beyond?
If you travel American Airlines frequently and you (or your companions) often check bags, you could save enough in bag fees to minimize or negate the annual fee.
And if you enjoy the free snacks, drinks, and a quiet place to relax in Admirals Club lounges, you’ll get a better deal paying $450 for this card than you would if you bought an Admirals Club membership on its own.
That said, if you have other cards or elite status that gets you similar perks, it’s probably NOT worth spending $450 to keep this card another year.
2. Example – American Express Platinum
But there’s a $450 annual fee.
Like in the previous example, you could get lots of Big Travel from the sign-up bonus which could more than make up for the annual fee in the 1st year.
For example, you could transfer 40,000 American Express Membership Rewards points to Singapore Airlines and have more than enough miles for a round-trip coach flight between New York and Frankfurt, or Houston and Moscow.
But the good thing about the American Express Platinum is you can negate much of the annual fee by making the most of perks like:
- Up to a $200 airline incidental fee credit each year with a qualifying airline of your choice
- Airport lounge access (Delta, Priority Pass, and American Express Centurion Lounges)
- $100 statement credit for Global Entry or $85 statement credit for TSA PreCheck
- Terms & limitations apply
Plus, with this card, you can get Starwood Gold (better rooms, late check-out) and Hilton Gold (free breakfast & upgrades) elite status.
If you use the full $200 airline fee credit each year, the annual fee is effectively reduced to $250. And if you use the airport lounge and elite status perks frequently, you can get much more than your money’s worth from the balance of the fee.
And remember, AMEX cards come with excellent purchase protections and extended warranties.
Again, consider the other cards in your wallet. If you’re already getting these benefits elsewhere, you’ll have to do the math to see if it’s worth it for you.
3. Example – Citi Prestige
Beyond the 50,000 Citi ThankYou point sign-up bonus (worth at least $800 in travel on American Airlines and potentially more when transferred to airline and hotel partners – EXPIRED), you’ll get extras like:
- $250 statement credit each calendar year for airline fees (including airfare!)
- $100 statement credit for Global Entry application fee
- Access to American Airlines Admirals Club lounges for primary cardholder, immediate family, or 2 guests, as long as you’re flying on American Airlines that day through July 23, 2017
- Priority Pass Lounge access for primary cardholder and up to 2 guests (additional guests $27 per person, per visit)
- 4th night free when you book 4 consecutive nights at any hotel (you can use this perk an unlimited number of times!)
- 3 (or more) free rounds of golf per year through July 23, 2017
In the 1st year, you’ll actually make a profit with this card if you maximize the $250 airline statement credit. That’s because the credit re-sets each calendar year – so you could get 1 statement credit this year, and another in 2016 before your annual fee is due.
In the 2nd year and beyond, you’ll still have lots of opportunity to make up for the annual fee. The lounge access alone could be worth it for some!
And if you have lots of paid hotel stays of 4+ nights, you could off-set the cost of the annual fee in just 1 or 2 trips with the 4th night free perk.
That said, if you don’t think you’ll spend a lot on airline expenses (or use Admirals Club lounges), aren’t planning paid hotel stays, and don’t golf, you might not get your money’s worth from this card’s fee.
I like Big Travel with Small Money but that doesn’t mean NO money. I consider the annual fee on certain cards to be well-spent Smart Money!
That’s because with some annual-fee cards, you’ll get:
- Access to points transfers to travel partners (worth potentially thousands of dollars)
- Airport lounge access (free snacks, drinks, a quiet place to relax)
- Free checked bags (this perk alone can save you a small fortune)
- Hotel elite status (better rooms, freebies)
- Complimentary hotel nights on your card anniversary (which can more than off-set the annual fee)
- Statement credits for airline fees & application fees
Always consider whether you’ll make good use of a card’s extra benefits. And consider if you already get some of these perks from other cards or elite status you have.
At 1st it can be tempting to reject any card with an annual fee. But as you gain more experience using your points, you may decide that some (but not all!) annual fees are worth paying. For example, paying the annual fee on my Chase Sapphire Preferred allowed me to transfer my Chase Ultimate Rewards points to United Airlines for a trip to Kauai!
That said, if you can’t afford the annual fee or it doesn’t help you reach your travel goals, then of course it’s OK to avoid those cards!
Which cards with an annual fee do you feel are worth the cost? Or, in your opinion, are annual fees never worth paying?
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