Complete guide to credit card annual fees

Editor’s note: This post has been updated with the current card information. 

Since I write about points, miles and credit cards, the topic of annual fees often comes up with friends and family. I’ve been surprised to hear how many people avoid — and for some people I spoke to, completely exclude — cards with annual fees. I’ve heard many people say, “Why would I pay to have a credit card when there are so many options without annual fees?” and “Paying a credit card annual fee just isn’t worth it.”

Sure, no one likes paying credit card annual fees. But paying an annual fee can often unlock earnings and benefits that offset the annual fee. So today, I’ll consider various aspects related to credit card annual fees, including when it may be worth paying an annual fee.

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What is a credit card annual fee?

A credit card annual fee is a fee charged by the credit card issuer that you must pay each year to remain a cardholder.

The exact amount varies, depending on the level of perks and rewards offered on the specific card. However, these fees typically start around $50 and can climb to nearly $700 for premium-level cards.

Related: Major mistakes people make with travel rewards credit cards

When do you pay the credit card annual fee?

Your credit card’s annual fee will usually appear on your first monthly statement after becoming a cardholder. In subsequent years, the issuer will charge your annual fee on or around your account anniversary, which should occur around the same time of year that you originally opened the card.

Note that some cards offer an annual fee waiver for your first year. You’ll see this clearly stated when you apply. For these cards, you’ll be charged the annual fee on each account anniversary — but you’ll be able to enjoy the first year of benefits (and rewards) without an out-of-pocket cost.

Related: Do credit card annual fees count toward bonus spending requirements?

Can I get the credit card annual fee waived?

As I just mentioned, some cards waive your annual fee the first year. Some issuers also offer discounted annual fees or perks to high-value banking or investment customers. And, some issuers waive annual fees on select credit cards for active-duty military members.

In general, you should expect to pay the full annual fee each year unless you’re eligible for a waived or reduced annual fee. But if a card reduced benefits in the last year or you had specific issues with your account, you can call the number on the back of the card when your annual fee posts to express your concerns.

The agent may be able to give you a retention offer (usually in the form of a reduced annual fee, bonus rewards or a spending challenge) that can make it more appealing to pay the annual fee and keep the card.

Related: TPG readers find success with retention bonuses

What cards usually have annual fees?

There are two types of credit cards that charge annual fees: starter cards designed for consumers with limited or poor credit and travel rewards cards that offer various perks and benefits.

If you have limited or poor credit, then you may need to pay an annual fee for the privilege of having a secured card and building your credit. Alternatively, rewards cards often charge an annual fee but offer benefits, statement credits and other perks that can be worth more than the annual fee to some cardholders.

Related: The best credit cards with annual fees under $100

When is it worth paying a credit card annual fee?

Paying a credit card annual fee can make sense on select cards for these three reasons:

Earning valuable points

One primary motivation for paying an annual fee is the type (or number) of points you can earn. Generally speaking, cards without an annual fee won’t provide the valuable earning potential of cards with an annual fee. There are three main aspects to this:

Sign-up bonus: Most cards with no annual fee have less valuable sign-up bonuses than those with annual fees. For example, the no-annual-fee Ink Business Cash Credit Card offers $750 cash back after you spend $7,500 on purchases in the first three months after account opening. Meanwhile, the $95 annual fee Ink Business Preferred Credit Card offers 100,000 bonus Chase Ultimate Rewards points after you spend $15,000 on purchases in the first three months of account opening. Those points are worth at least $1,250 toward travel — but could get you $2,000 (or more) if you leverage Chase’s transfer partners.

Earning rates: Many cards without an annual fee don’t award points at the same rate as cards with an annual fee. For example, the no-annual-fee Capital One VentureOne Rewards Credit Card earns 1.25 miles per dollar spent, while the $95 annual fee Capital One Venture Rewards Credit Card earns 2 miles per dollar spent.

Type of points: In some cases, issuers will restrict you from earning the most valuable currencies on cards with no annual fee. For example, the no-annual-fee Chase Freedom Flex and Chase Freedom Unlimited only earn cash-back rewards — unless you also have a card that earns Chase Ultimate Rewards points, such as the Chase Sapphire Reserve, Chase Sapphire Preferred Card or Ink Business Preferred Credit Card (all of which charge annual fees).

Related: How (and why) you should earn transferable points

Annual credits, bonuses or free nights

The annual credits, bonuses or free nights provided by select cards can also justify paying an annual fee. After all, these perks may cover most (if not all) of the card’s annual fee. Here are a few examples:

• Marriott Bonvoy Boundless Credit Card ($95 annual fee): One free night award every year after your account anniversary, valid for a one-night hotel stay at a property with a redemption value up to 35,000 points (TPG valuations peg the value of 35,000 Marriott points at $280).
• Hilton Honors American Express Aspire Card ($450 annual fee, see rates and fees): Up to $250 Hilton resort statement credit each year of card membership, up to $250 airline fee credit each calendar year and one weekend night reward with your new card and every year after renewal. You must enroll for select benefits.
• Southwest Rapid Rewards® Premier Credit Card ($99 annual fee): 6,000 points every year on your cardmember anniversary (TPG’s valuations peg the value of 6,000 Southwest points at $90).

The information for the Hilton Aspire card has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Related: Can you use free night certificates to book a hotel room for someone else?

Included benefits

Many top credit cards with an annual fee give you numerous benefits that can be incredibly valuable over a year. For example, some airline credit cards offer a free checked bag, and some cards offer shopping protections that can provide peace of mind (such as the extended warranty protection provided by the Chase Sapphire Preferred Card).

Several travel rewards credit cards, including The Platinum Card® from American Express, Capital One Venture X Rewards Credit Card and Chase Sapphire Reserve, even shine with premium perks such as lounge access and travel protections. Depending on your situation, carrying one of these cards can easily outweigh the annual fee associated with the card.

Related: The one credit card TPG staffers can’t live without

What are some of the best cards with no annual fee?

Everyone should get (and keep) a no-annual-fee credit card. Even if you already have several cards that charge annual fees, this advice holds. There are many credit cards with no annual fees, but here are some of our favorites:

• Citi® Double Cash Card: Best for everyday spending.
• Chase Freedom Unlimited®: Best for flexible cash rewards.
• Chase Freedom Flex: Best for rotating bonus categories.
• Capital One SavorOne Cash Rewards Credit Card: Best for dining and entertainment.
• Capital One VentureOne Rewards Credit Card: Best for airline transfer partners.
• Capital One Quicksilver Cash Rewards Credit Card: Best for beginner cash back.
• Bank of America® Travel Rewards credit card: Best for existing Bank of America customers.
• Bank of America® Customized Cash Rewards credit card: Best for customizable rewards structure.
• Citi Rewards+® Card: Best for small purchases.

Since you don’t have to pay anything to keep these cards, you can keep them open for the long term — and by doing so, you can boost your credit history length, which should help your credit score.

Related: No annual fee credit cards that earn transferable points

Should I get the no-annual-fee version of a card?

Some travel rewards credit cards come in multiple versions, and one option typically offers no annual fee. For example, you can choose from three different Capital One cards in the Venture family:

• Capital One VentureOne Rewards Credit Card ($0 annual fee).
• Capital One Venture Rewards Credit Card ($95 annual fee).
• Capital One Venture X Rewards Credit Card ($395 annual fee).

All of these earn Capital One miles, but as you climb the annual fee ladder, your earning rates and included perks will jump considerably.

To decide whether it’s worth getting a version with an annual fee, consider the following factors:

• Value of the sign-up bonuses.
• Earning rates.
• Redemption options and value.
• Value of perks offered by one card but not the other, such as airport lounge access and a Global Entry or TSA PreCheck application fee credit.

You may find that the additional perks and higher earning rates justify paying an annual fee. The sign-up bonus difference also may make your choice easy. After all, the card with an annual fee will often offer a higher sign-up bonus that can make it worth picking.

Then, if you can’t justify paying the annual fee after the first year, you can usually downgrade to the no-annual-fee version.

Related: This, not that: Alternative card recommendations for these popular credit cards

Bottom line

Paying an annual fee on a credit card may initially seem like a poor investment. However, under the right circumstances, one or more annual fee cards can pay off by unlocking valuable earning opportunities, perks and other benefits. Be sure to crunch the numbers and evaluate your travel and spending scenario to decide whether paying a credit card annual fee makes sense.

Additional reporting by Nick Ewen.

For rates and fees of the Hilton Aspire Card, please click here.

Featured photo by martin-dm/Getty Images.