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We devote a lot of time to discussing travel rewards credit cards here at TPG. Opening cards to earn top sign-up bonuses and then using those cards strategically at various merchants can open up fantastic redemptions like premium-class flights and luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards, so today I’ll continue our new series that debunks these myths and allows you to begin planning for your next vacation. Previous entries includes having too many cards, closing a card you don’t use, how permanent of an impact an application has on your score, not paying your balance in full, paying an annual fee and keeping your points when canceling a card. Today I’ll address another myth related to the points and miles you can earn.
Myth #7: Annual fees count toward the minimum spending requirements to earn a sign-up bonus.
There’s probably no greater misery in this hobby than missing out on a sign-up bonus on a new credit card. For those of you who aren’t road warriors, these large hauls of points or miles (coupled with smart usage of bonus categories) are a fantastic and inexpensive way to boost your account balances. Even though issuers like American Express and Chase are tightening up restrictions on earning these bonuses, there are still many ways to make the most of them.
Unfortunately, the terms and conditions of what you need to do to earn these sign-up bonuses leave little room for interpretation, and if you don’t follow them to a T, you’ll be out of luck. For example, you typically must meet the minimum spending requirements in the time allotted from the date you opened your account, not the date you received the card. In addition, a purchase must post to your account within this time frame. Many merchants won’t charge your card until your item ships, so a pending transaction won’t do you any good.
Finally, any type of fee charged to your account will not count toward the minimum spending requirements needed to earn a sign-up bonus, including an annual fee. This is applied universally across issuers. Here’s the language from the application page of the new Chase Sapphire Reserve Card:
“Purchases” do not include balance transfers, cash advances, cash-like charges such as travelers checks, foreign currency, and money orders, any checks that access your account, overdraft advances, interest, unauthorized or fraudulent charges, or fees of any kind, including an annual fee, if applicable.
Here’s similar language for the Premier Rewards Gold Card from American Express:
The following charges do NOT count towards the spending requirement: fees or interest charges; balance transfers; cash advances; purchases of travelers checks; purchases or reloading of prepaid cards; or purchases of other cash equivalents.
You’ll find the same restrictions for Citi-issued cards like the Citi Prestige Card:
Balance transfers, cash advances, returned purchases, fees and finance charges do not count as purchases.
As you can see, all three of these popular cards do not count fees toward the sign-up bonus, though Chase is the only one who explicitly calls out annual fees in this context.
It’s important to remember that this myth only applies to a handful of credit cards. There are many cards out there with no annual fee, and many others that do charge annual fees will waive them for the first year to entice you to apply without any up-front investment (the Chase Sapphire Preferred Card immediately comes to mind). In either of these cases, you don’t need to worry about miscalculating your minimum spend by inadvertently including an annual fee.
Where this is most important is when it comes to premium travel rewards credit cards. With annual fees of up to $550 (that are usually charged in the first month or two), this can make up a large portion of the money you need to spend. For example, the current sign-up bonus on The Platinum Card from American Express is 60,000 Membership Rewards points after you use your new card to make $5,000 in purchases in your first three months.
As I mention above, there’s nothing worse in this hobby than opening a credit card only to miscalculate how much you need to spend and miss out on a lucrative sign-up bonus. Part of this is recognizing what does and doesn’t count toward these spending requirements, and annual fees definitely do not. My advice: Always be sure that you’re leaving out annual fees when looking at your progress toward earning a sign-up bonus, and try to pad your minimum spend by at least a few hundred dollars. This will ensure that you stay on track and won’t be disappointed when time runs out!
Have you ever missed out on a sign-up bonus thanks to an annual fee?
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