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Sunday Reader Email Question: How Do I Avoid Annual Fees?

by on July 24, 2011 · 32 comments

in American Express, Credit Cards, Sunday Reader Questions

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TPG reader Greg writes:

“How do you decide which credit cards are worth keeping and paying the annual fee on?  Member perks are not super important to me, whereas saving money is. Any advice would be great!”

This is a great question, because huge sign-up bonuses are nice, but do we really need 10 different credit cards for everyday use? The answer is no. How many do you really need? I personally use my American Express Platinum (but adding a Premier Rewards Gold card so I get spend thresholds and bonuses), Chase British Airways (soon to be Sapphire Preferred) and Citi AA cards. I like to maintain a solid business relationship with those three card issuers because they generally offer the most competitive credit card products.

I do not consider myself a “churner”- someone who applies for the maximum amount of cards possible several times a year. I do, however, get in on all of the best deals which keeps my mileage and point balances high enough to cover pretty much any trip I want to take. I don’t have a set number, but I usually get 4 or 5 new credit cards a year. This year has been particularly lucrative, so I’ll probably end up with 7 or so when all is said and done, but I will consolidate at some point in about 9 months to choose the cards that best fit my needs and have the best benefits.

Since the reader is concerned about fees, I’d recommend going with a fee-free American Express. Their Membership Rewards program in my opinion, is the most valuable transferable points program out there. They currently have 50% transfer bonuses to British Airways and Delta, which can give you huge value if taken advantage of properly (see this post for my take on the best route to go).While the fee-free cards are not eligible for Membership Rewards, there is a way to get around that.

While the Membership Rewards cards carry annual fees, you can always downgrade your card to a fee-free card, like the Blue or Zync Cards, and then upgrade back to a Membership Rewards card whenever you want to redeem points. When you upgrade to a Membership Rewards card, all of the points you accrued while using the fee-free card will become full, transferable Membership Rewards points.

American Express usually runs at least one Membership Rewards card with an annual fee waived and they currently have the Premier Rewards Gold card with the $175 annual fee waived for the first year and a 25,000 point sign-up bonus. The Platinum card has a $450 annual fee, but with the 25,000 point bonus and with all of the benefits like $200 a year in airline credits, free Global Entry and airline lounge access, I firmly believe the card pays for itself many times over.
Note: if you want the sign-up bonuses you need to sign out of your American Express account and apply for the cards as a new cardmember. If you call to upgrade, they usually do not offer the sign-up bonus.

Even if there isn’t an option to get a card with the fee waived, you can always get a Gold card ($125 annual fee), transfer the points and then downgrade back to a fee-free card. Your annual fee will be prorated, resulting in a negligible cost depending on how long you keep your upgraded card.

Most card issuers have no-fee card options, but I personally find American Express to be the most flexible with regards to switching back and forth between fee-free and annual fee cards. And because you are keeping the same account open, you don’t have to risk losing the long history of your account, which is one of the factors FICO takes into account when determining your score (read more about that here).

Feel free to share your thoughts on ways to accrue valuable points without paying annual fees!

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Jim H

    TPG, good info . one question . Is the British Airways Visa going away? You wrote: “Chase British Airways (soon to be Sapphire Preferred) …”

  • Anonymous

    The card itself isn’t going away- I just meant my Chase workhorse card is going to be Sapphire Preferred

  • Megan

    The Premier Rewards Gold card link appears to offer a 15,000 bonus when you spend $30,000 in a year. Is there another sign-up bonus I’m missing? I’d like to get one of these cards eventually, but I’d never spend that much in a year (I’m a grad student married to a med student, so no money here!).

  • Dan-lauz

    PG, any comments for peoples on the canadian side ?

  • Nick

    Is it possible to upgrade to a Membership Rewards card, transfer points to BA for the bonus, and then downgrade back to a fee-free card? Would I be charged the full annual fee, even if I have the MR card for a few months?

  • Anonymous

    Yes it’s possible and as mentioned in the post the annual fee will be prorated

  • Anonymous

    That 15k is spend bonus. If you are logged into your Amex account you won’t see the 15k bonus when you click the link. You have to sign out or use a new browser and you’ll see the 15k after spending $1k

  • twiggers

    Call when it gets close to your annual renewal and ask for the retention department. Be prepared to close the card and say that you want to because of the annual fee. They’ll often waive the annual fee or give a bunch of free miles/points to keep it open.

  • Alex

    I just called Chase and asked them to remove the annual fee from my Continental OnePass Plus MasterCard(I’ve had the card for 1+ years). The agent informed me that this was not possible and I’d have to cancel the card. Was this just a bluff by the Chase agent, or is the no-fee option with Chase Continental cards not possible?

  • Heather

    My oldest credit cards are the free Hilton Amex and the free Citi Hilton Visa. The Chase Priority Club Visa and Marriott Visa give an annual free night which offsets the annual fees. I usually apply for 3-5 credit cards per year for bonuses and cancel when the annual fee comes due. The good thing about American Express is that they automatically count each card as having the same opening date as your oldest card; so the Amex card I held a year and just cancelled appears on my credit report to have been open for 9 years.

  • Heather

    Instead I would open a new Gold Amex account with an opening bonus and annual fee waived. You can then pool all your MR points, transfer them, hold the card 6 months to a year, then cancel before the annual fee is due, keeping your free account open.

    I upgraded my Hilton Amex to the Hilton Surpass Amex this spring in order to get Hilton Gold status for a trip to Italy. After about 3 months I downgraded back to the free Hilton card. They prorated my annual fee; I ended up paying $12, which got my award stay in Venice upgraded to a huge suite, my award stay at the Hilton Rome Airport upgraded to an executive room, and a free hotel breakfast buffet for two people for 5 days. So yes, Amex prorates annual fees!

  • Djfan306

    I thought Blue Sky points were different from membership reward points?

  • Megan

    Oops! I thought I was logged out, but it must have recognized me. Thanks for your kind reply :)

  • JA

    I tried the same thing with my United MP card and was told they don’t waive fees. I guess I will have to cancel this week.

  • JA

    I have the TD American Airlines AAdvantage Visa and I negotiate with them every renewal. Last year, I got them to reduce the fee in half to $6o and give 25,000 AAdvantage miles.

  • Anonymous

    You are correct- I updated the post to say Blue or Zync- they are Membership Rewards Express, but can be transferred to Membership Rewards when the card is upgraded or you add an extra card to your account

  • Anonymous

    They generally don’t waive fees anymore. You may get a miles/point bonus, but I wouldn’t be surprised if they let you cancel. They have to make money to pay for all these miles somehow!

  • Anonymous

    No problem- good luck!

  • JA

    Ideally, they would like you to pay the fee. However, if you refuse to pay the fee they will still earn money from merchant fees – if you cancel they lose your business to the competition who will waive gees for the ensuing year. I don’t see their logic, but goodbye Chase.

  • Anonymous

    Agree Heather-the premier rewards gold amex right now is the one with the annual fee waived- not the regular gold card

  • Cory W.

    I’m newbie, so forgive the question, but what does opening five or six new credit cards in a year do to your credit rating? We have excellent credit and don’t want to lose that.

  • Anonymous

    Check out this post. http://thepointsguy.com/2011/06/understanding-how-your-credit-score-works/
    Each inquiry is 2-5 points off your score (mostly 2) for a year. So 5 new cards = a 10-25 reduction in your score, which is on a scale of 850. As long as your score is over 720, you have excellent credit. There is virtually no difference between a 750 and 850.
    Additionally, there are a lot of factors in your score, so while inquiries may take a hit off your score, you may gain points elsewhere, like less overall utilization of your available credit

  • Jeff

    Aside from Utilization how does cancelling a card affect your credit rating? Doesn’t it just make sense, when the annual fees come up to cancel and get a new one (with new offer?). Am I missing something?

  • Roger

    Thanks for this post. I learned a lot. Wish I had known all of this a few years ago when I got the Blue Sky card which now has 28k of points that are worth nothing in terms of miles.

  • Matt

    Roger, I think you can just upgrade to an MR card and they will transform.

  • Matt

    Roger, I think you can just upgrade to an MR card and they will transform.

  • Matt

    Any way to reduce the pain/impact from annual fees long-term holding the Plat Amex, additional cardmembers on it, plus a premier rewards gold? I’d *like* to do that, but $800 in full-price annual fees is a bit steep!

  • PJ

    Can AMEX BLUE SKY points be merged into other AMEX cards to collect Continental points before September 30 deadline? My Amex GOLD Premier Rewards card is coming in with $175 annual fees in late August after I collected 50K sign on bonus which I mostly converted them into Continental miles to different authorized signers’ account. Since no Amex rewards points can be converted into Continental points after Sep 30, my thinking is there is no points to keep a fee paying AMEX card. I have managed to sign up AMEX BLUE SKY and easily earned the 22500 points. Should I be just content to use 22500 to offset the $300 travel related expenses charged on Amex Blue sky or if there is a way i can get those points merged with other AMEX accounts and eventually cum up my continental miles ?

  • FlyingPLD

    Zync has a $25 annual fee, whereas Blue does not. The perk here is that Zync is a charge product (and thereby allows for account backdating if you upgrade or downgrade within the Amex charge products) whereas Blue is credit. I’ve also found that I have a higher spend power on the Zync.

    Also, Zync has a 10,000 point offer now. The offer that I got when they launched the product was 15,000, but it still covers the cost now.

  • brazilflyer

    I second what poster Heather noted here. The Chase Priority Club Visa will be one of the few cards I have now from a recent churn that I will keep for years to come. The annual fee is more than offset by a free night certificate mailed to you every year on your anniversary date. I usually look to this type of annual gift to offset the cost of an annual fee. Another good way is to get the company’s retention office to waive the fee if you threaten to close the card.

  • Mike

    Average age of your accounts does play a role in determining your credit score. So if all your revolving (credit card) accounts are less than a year old because you cancel them when the fee comes due, it could hurt you. In many cases, you may have older fee-free accounts as well as home/auto/other loans that will help the average age, so the churning doesn’t hurt much, if at all. As mentioned, new AMEX cards will take on the date of your earliest card, so they also help in this respect.

  • Mmt

    can any free card transfer points to full MR account? Like Hilton?

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