When Paying an Annual Fee Is Worth It

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February 09, 2023

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With so many credit cards offering solid rewards programs for free, it might seem like there’s no reason to ever apply for one that charges an annual fee.

But there are times when paying an annual fee is worth it. Maybe the card offers a welcome bonus to new members that are so valuable that it easily makes up for the annual fee in the first year you open the account. And maybe the card’s rewards program, cash-back options, and perks are especially generous, which could offset that annual fee every year after that. A card that charges an annual fee might also waive certain other fees, such as foreign transaction fees that will save you money over time.

Determining whether paying an annual fee makes financial sense requires a close look at your spending habits and the perks and rewards these cards offer. Here is a look at when paying an annual fee might be worth it.

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The welcome bonus

Annual fees are easier with credit cards that offer generous sign-up bonuses. These offers are typically available to new cardholders if they charge a certain amount during a specific time, usually three months.

If these welcome bonuses are high enough, and you’re certain you can hit the spending thresholds you need to meet to earn them, they can easily outweigh the cost of your annual fee during the first year of opening your account.

Consider the Capital One Venture Rewards Credit Card. This card does charge an annual fee of 95. But new cardholders can earn 75,000 bonus miles if they spend $4,000 on purchases during the first three months of opening their account. Those bonus miles easily cover the cost of the annual fee.

The Chase Sapphire Preferred® Card is another that offers a welcome bonus that easily covers its annual of 95. If you spend $4,000 on purchases during the first three months of opening your account, you'll receive 60,000 bonus points. That's worth $750 when redeemed for travel through the Chase Ultimate Rewards portal.

And the Citi Strata Premier℠ Card will also award new cardholders 60,000 bonus points if they spend that same $4,000 in three months. You can redeem these points for travel rewards or $600 in gift cards at thankyou.com. Again, if you reach this spending threshold, you'll immediately justify paying the card's annual fee of 95.

The key, of course, is to hit your spending requirements. Those welcome offers will only help if you make enough purchases to earn them.

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A strong rewards program

Another way to quickly cover the cost of an annual fee? By earning cash-back bonuses, free miles, or rewards points.

Fortunately, several cards offer generous rewards programs. If the rewards rate is high enough, you’ll easily cover their annual fees with plenty of extra rewards – which you can usually convert into cash, flights, hotel stays, merchandise, or gift cards – left over.

It’s important that you choose a card that rewards your spending habits. If you rarely travel, don’t choose a card that reserves its highest tier of rewards for hotel stays or flights. You probably won’t earn enough yearly rewards to cover your card’s annual fee.

But if you eat out several times a week, choosing a card offering higher rewards points for restaurant meals could pay off, generating enough rewards to cover that fee each year easily.

The Capital One Venture X Rewards Credit Card is a good example of a card that charges an annual fee – of $395– but also offers a generous rewards program. 2 Miles per dollar on every purchase, every day. 10 Miles per dollar on hotels and rental cars booked through Capital One Travel. 5 Miles per dollar on flights and vacation rentals booked through Capital One Travel. If you frequently travel, rent cars, and stay in hotels while you do so, you'll easily earn enough rewards to offset that higher $395 annual fee.

The Platinum Card® from American Express charges an even higher annual fee $695 (rates and fees). But its rewards program is robust enough to make this fee worthwhile, depending on your spending habits. Earn 5X Membership Rewards® Points for flights booked directly with airlines or with American Express Travel up to $500,000 on these purchases per calendar year and earn 5X Membership Rewards® Points on prepaid hotels booked with American Express Travel.

You must travel and spend a lot while doing it to cover that $695 annual fee. But if you are a frequent flier, the rewards program should generate enough points to offset the steep annual fee each year.

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Impressive perks

Cards that charge annual fees tend to offer a variety of perks to cardholders. The key is determining whether these perks are important enough for you and if you’ll use them often enough to make paying an annual fee worthwhile.

One such perk? Many cards offer a credit to pay for enrollment in the TSA PreCheck or Global Entry programs, allowing you to skip airport security lines. When you sign up for either of these services, your membership will last five years, with TSA PreCheck costing $78 and Global Entry, designed for international travel, $100. Cards such as the Capital One Venture Rewards Credit Card and the United℠ Explorer Card will reimburse you when you sign up for either Global Entry or TSA PreCheck.

Other cards offer trip delay insurance. This perk reimburses you for reasonable expenses when you are waiting for a delay in your flight. This insurance might cover the money you spend on meals, toiletry items, or renting a hotel for the night. It varies, but trip delay insurance typically kicks in if your flight has been delayed for more than six hours.

If you travel frequently, this insurance can prove handy as flight delays aren't uncommon enough. The Chase Sapphire Reserve® and The World of Hyatt Credit Card are both examples of cards that offer this perk.

Other cards might offer cell phone protection, which helps reimburse you for replacing a broken, stolen, or lost cellphone. Cards with annual fees that offer this protection include the Ink Business Preferred® Credit Card and Capital One Venture X Rewards Credit Card. Considering how expensive cell phones can be, this perk can easily cover the cost of your annual fee, especially if you have the habit of dropping your phone.

Then there's purchase protection. You can use this perk to cover the costs of replacing or repairing damaged or stolen items you purchased with your credit card. Annual fee cards that offer this protection include the Chase Sapphire Preferred® Card and the Blue Cash Preferred® Card from American Express. Again, using this perk to cover one damaged item – keeping in mind that there are limits to how much coverage you can receive during a year – could cover your entire annual fee.

Other cards offer you free access to airport lounges, free hotel stays, valuable travel credits, free checked bags when flying, or complementary insurance when signing up for a rental car. These perks can add up to significant savings. Another card might come with a 0% balance transfer offer for a limited time that you can use to transfer and pay down existing debt without worrying about paying interest.

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The bottom line

While it might seem that paying an annual fee is an expense you can and should avoid, there are times when applying for cards that charge them makes financial sense. If your spending habits mean that you’ll earn the most rewards and the highest welcome bonus from a card that happens to charge an annual fee? You shouldn’t let that fee scare you away from applying for it.

For rates and fees of The Platinum Card® from American Express, please click here.

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JoyWallet has partnered with CardRatings for our coverage of credit card products. JoyWallet and CardRatings may receive a commission from card issuers.

Dan Rafter is a freelance writer who has more than 20 years experience covering personal finance. He's written for the Chicago Tribune, Washington Post, Bankrate, CreditCards.com, Rocket Mortgage, NortonLifeLock and several others.

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