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Update: Some offers mentioned below are no longer available – Citi Hilton HHonors Reserve Card, Hilton Honors Surpass Card from American Express, Citi Gold AAdvantage World Mastercard, Premier Rewards Gold Card from American Express, Citi Premier Card
As a points and miles devotee, I’m always trying to get the best return I can on my rewards, and an important part of my strategy is knowing how to handle annual fees from credit cards. Today TPG Contributor Jason Steele offers some tips on ways you can offset, minimize, or avoid those fees altogether.
The top rewards credit cards all carry an annual fee, which can add up to a significant expense for award travel enthusiasts. When I’m considering which cards to apply for, keep, and get rid of, one of my top priorities is to reduce the cost of these fees relative to the points and miles I earn. While I haven’t been able to eliminate paying annual fees, I have found ways to reduce the amount I pay each year to a very small amount considering the number of cards I hold.
In this post I’ll share my strategies for minimizing credit card annual fees, and discuss some important considerations that can help you do the same.
1. Look for cards with waived annual fees the first year. The easiest way to avoid annual fees is to prioritize offers that waive the annual fee for the first year. For example, both the Chase Ink Bold card has no annual fee for the first year of cardmembership, followed by a $95 annual fee after that.
Here are some (among many) other travel rewards cards that normally waive the first year’s annual fee.
- Citi Premier Card: $95.
- Citi AAdvantage Platinum Select World Elite Mastercard: $99.
- Citi Gold AAdvantage World Mastercard:$50.
- CitiBusiness AAdvantage Platinum Select World Mastercard: $99.
- Premier Rewards Gold Card from American Express: $195.
- Gold Delta SkyMiles® Credit Card from American Express: $95.
- Starwood Preferred Guest® Credit Card from American Express: $95.
- U.S. Bank FlexPerks Travel Rewards Visa Signature Card: $49.
- AeroMexico Visa Signature Card: $80.
- LANPASS Visa Signature Card: $75.
Sometimes a superior sign-up bonus will make paying the annual fee worthwhile, as is the case for the Ink Plus, which is currently offering 70,000 Ultimate Rewards points after spending $5,000 in the first 3 months. Though the $95 annual fee is not waived, the extra 20,000 points is worth $420 according to TPG’s most recent valuations, making this card offer the better deal despite the up-front expense.
2. Visit the retail branch. Bank branches sometimes have better credit card offers than you can find online. For example, TPG once found that he could get the United MileagePlus Club card (which normally has an annual fee of $450) free for the first year by going into a branch.
3. Look for targeted offers. Targeted offers are those that are sent directly to consumers via email, by logging into an online account, and through regular postal mail. These offers have become very popular in recent years, and many feature annual fee waivers for cardholders in the first year. For example, I received an American Express Platinum offer in the mail last year that had the first year’s annual fee waived, making the decision to apply a no-brainer.
4. Downgrade to no-fee versions in order to keep earning rewards and avoid losing rewards. When the annual fee finally comes due, you can always cancel your card, but you might forfeit any remaining balance of bank rewards (points and miles earned with airlines and hotel programs are always yours to keep).
Here are some of the major reward programs, and their no-fee card alternatives:
- American Express Membership Rewards. The Amex EveryDay® Credit Card from American Express has no annual fee and still allows cardholders to transfer points to airline miles as well as hotel programs.
- Citi ThankYou. You can downgrade your ThankYou Premier and Prestige cards to a no-fee Citi ThankYou Preferred Card. Although having just this card will not allow you to transfer points to airline partners or Hilton Hotels, there’s an easy workaround. You can freely transfer ThankYou Points to any other Premier or Prestige cardholder, who can then transfer points to his or her own frequent flier account and issue an award in your name.
- Chase Ultimate Rewards. The Chase Freedom and standard Sapphire (not Sapphire Preferred) cards are both part of the Ultimate Rewards program. These cards will not allow transfers of points to travel partners, but there are a few ways around this. One is to transfer points to another account you have that allows point transfers, such as Ink Bold, Ink Classic, Sapphire Preferred, JP Morgan Select, or Palladium. Or, you can transfer points to a spouse or co-worker who holds one of these cards and can issue an award in your name. Finally, you retain your rewards without the point transfer function, and can sign up for another card in the future that has this ability, perhaps with an annual fee waiver.
- Barclaycard Arrival Plus. Barclaycard offers the standard Arrival card with no fee. It earns double miles for travel and dining purchases, and one mile per dollar spent elsewhere.
- The Frontier Airlines card from Barclaycard comes in a no-fee version that offers only one point per dollar spent at FlyFrontier.com, and just one point per $2 spent elsewhere.
- Hilton Honors Surpass Card from American Express is offered in a standard version that offers seven points per dollar spent at Hilton hotels, 6 points per dollar at at US restaurants, US supermarkets, and US gas stations, and 3 points per dollar elsewhere. Terms apply.
- The Citi Hilton HHonors Reserve Card comes in a standard version that offers 6 points per dollar spent at Hilton hotels, three points per dollar at at U.S. restaurants, supermarkets, and gas stations, and two points per dollar elsewhere.
- Capital One Venture Rewards Credit Card. Capital One offers a no-fee version of this card called the Capital One VentureOne Rewards Credit Card. It earns 1.25 miles per dollar instead of two.
3. Hang on to a card until the annual fee is due. I’ve spoken to many people who assume they need to cancel their credit card soon after they receive a sign-up bonus in order to avoid paying the annual fee. Actually, that’s a mistake for several reasons. First, cardholders can wait until well after the annual fee is billed in order to cancel their card and generally receive a full credit for it. For example, Citi offers cardholders 37 days after the fee is billed during which they can still cancel their card and receive a credit. In addition, there are cards that offer an anniversary bonus that you can still receive, even if you subsequently cancel your card.
Canceling the card means that you lose access to its benefits and any possible future promotions. Quickly canceling an account can also impact your credit score, since it means that you’re not building a credit history, reducing the average age of your credit accounts, and increasing your debt to credit ratio for a given amount of debt.
Finally, I think it’s bad form to sign up for an account to receive a sign-up bonus, and then quickly cancel it. Card issuers extend these offers to earn your business, so the least you can do is maintain an open account for at least a year in order to fully evaluate a card’s benefits. Travel and spending habits can change unexpectedly, and you never know when a particular card will suddenly become more valuable. In addition, you wouldn’t want card issuers to begin viewing you as someone who is only seeking rewards and is not a valuable customer; that could jeopardize your chances of approval for new cards in the future.
4. Ask to have the fee waived. Before canceling a credit card, you can always request that an annual fee be waived. This may or may not work, but often phone representatives will offer you additional rewards for completing a minimum spending requirement that may offset the annual fee. To receive the best offers, you usually have to indicate a desire to cancel your card in order to be transferred to the bank’s retentions department. Either way, there’s no harm in asking.
5. Use additional rewards to cover or offset the fees. Many credit cards offer a annual bonus for renewing your cardmembership, such as points, free hotel nights, or airline companion certificates. In many cases those bonuses outweigh the annual fee, even if they can’t be redeemed for cash. For example, the IHG Rewards Club Select Credit Card comes with an anniversary bonus of a free night at any IHG property. For an annual fee of $49, that’s a great deal. Not every rewards card offers this, but consider the value of a renewal bonus before you cancel or downgrade your card.