Guide to credit card annual fees

Mar 12, 2020

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Since I write about credit cards daily, this topic often comes up with friends and family. I’ve been surprised to hear how many people avoid — and for some people I spoke to, 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.”

I keep most of my cards at home in a big wallet locked up, and just carry a few with me. Photo courtesy of Shutterstock.
(Photo courtesy of Shutterstock)

Sure, no one likes paying credit card annuals fees — but paying the annual fee can unlock earnings and benefits that can more than offset the annual fee. So let’s consider various aspects related to credit card annual fees, including when it may be worth paying an annual fee.

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In This Post

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.

Related reading: 12 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 you become a cardholder. In subsequent years, the annual fee will be charged on or around your account anniversary, which should occur around the same time of year that you originally applied.

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.

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

Can I get the credit card annual fee waived?

(Photo by Isabelle Raphael / The Points Guy)
(Photo by Isabelle Raphael / The Points Guy)

As was just mentioned, some cards waive your annual fee the first year. Some issuers 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 provide you a retention offer — usually in the form of a reduced annual fee, spending challenge for bonus rewards or simply bonus rewards — that can make paying the annual fee and keeping the card more appealing.

Related reading: Will I pay the full annual fee when product changing a credit card?

Cards that usually have annual fees

There are two types of credit cards that charge annual fees: starter cards that are designed for those with limited or poor credit and 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 reading: How to assess and build your credit card portfolio

When is it worth paying a credit card annual fee?

Lounge access is one popular card perk that can provide great value to frequent travelers. (Photo of the Escape Lounge in Phoenix by Zach Griff/The Points Guy)

Paying a credit card annual fee can make sense on select cards for the following three reasons.

The valuable points you can earn

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 $500 cash back after you spend $3,000 on purchases in the first three months after account opening while the $95 annual fee Ink Business Preferred Credit Card offers 100,000 bonus points after you spend $15,000 on purchases in the first 3 months of account opening.

The information for the Ink Business Cash, Ink Business Preferred has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

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 two miles per dollar spent.    

Types of points: In some cases, you are restricted from earning the most valuable currencies on cards with no annual fee. For example, the no-annual-fee Chase Freedom and Chase Freedom Unlimited only earn cash-back rewards unless you also have a card that earns Chase Ultimate Rewards points like the Chase Sapphire ReserveChase Sapphire Preferred Card or Ink Business Preferred Credit Card (all of which charge annual fees).

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

The annual credits, bonuses or free nights

Another key reason it can make sense to pay an annual fee on a credit card involves the annual bonuses that some cards provide. These bonuses may cover most (if not all) of the card’s annual fee. Here are a few examples:

Related reading: Why I’m happy to pay the annual fee on the IHG Premier

The included benefits

Many top credit cards with an annual fee give you numerous benefits that can be incredibly valuable over a year. This could be a free checked bag benefit for frequent travelers on a particular airline. It could also be a benefit that just provides peace of mind (such as the primary rental car insurance offered by the Chase Sapphire Preferred Card).

Related reading: Battle of the premium travel rewards cards: Which is the best?

This is also where premium credit cards such The Platinum Card® from American Express and Chase Sapphire Reserve® shine thanks to valuable perks like 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 reading: Amex Platinum vs. Chase Sapphire Reserve: Which card is right for you?

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

(Photo by John Gribben for The Points Guy)
The Chase Freedom Unlimited and Citi® Double Cash Card are two popular no-annual-fee cards. (Photo by John Gribben/The Points Guy)

It’s generally recommended that everyone should get (and keep) a no-annual-fee credit card even if you also have some cards that charge annual fees. There are many credit cards with no annual fees, but here are some of my favorites:

The information for the Wells Fargo Propel 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 reading: The best no annual fee credit cards

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

Some travel rewards credit cards come in two versions: a basic card with no annual fee and a limited sign-up bonus and a premium card with an annual fee, a larger sign-up bonus and oftentimes enhanced benefits. Sometimes annual fees are justified by the extra benefits that come with them, but sometimes they’re not. A few such cards are:

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

Now, let’s take a closer look at the Capital One Venture and the Capital One VentureOne. Hopefully walking through a comparison of these two cards will help you determine how to compare other cards so you can decide which is best for your situation and spending habits.

Capital One Venture Rewards Credit Card vs. Capital One VentureOne Rewards Credit Card

These two Capital One cards can be confusing by their names alone. The Capital One Venture is the fee-based version, while the Capital One VentureOne does not incur an annual fee. Here’s an overview of the benefits on these cards:

Capital One VentureOne Capital One Venture
Annual Fee $0 $95
Year One Sign-Up Bonus 20,000 bonus miles once you spend $1,000 on purchases within the first 3 months from account opening 50,000 bonus miles once you spend $3,000 on purchases within the first 3 months from account opening
Everyday Earning 1.25 miles per dollar on all purchases 2 miles per dollar on all purchases
Redemption Each mile is worth 1 cent toward travel

Transfer miles to 15+ travel partners

Each mile is worth 1 cent toward travel

Transfer miles to 10+ travel partners

Foreign Transaction Fees None None

The Capital One Venture has a higher sign-up bonus and Global Entry or TSA PreCheck application fee credit (up to $100) (which you can get every four years). The additional 30,000 miles you earn are worth $300 toward travel, but TPG’s valuations estimate you can get $420 in value from these additional 30,000 miles if you transfer them to travel partners. Also, the higher earning rate on everyday purchases gives you 60% more miles on the Venture card than the no-annual-fee VentureOne card.

Results depend on your spending habits and how you plan to redeem your miles. If you redeem for travel at a rate of one cent per mile, you’ll earn 0.75 miles more per dollar spent on the Capital One Venture. This means the annual break-even point (where the additional value earned covers the $95 annual fee) is:

$95 / 0.75 cents per mile = $12,666.67

On the other hand, if you’ll transfer your miles to travel partners and agree with TPG’s valuation of Capital One miles at 1.4 cents each, then you’ll earn 1.05 miles more per dollar spent on the Capital One Venture. This means the annual break-even point (where the additional value earned covers the $95 annual fee) is:

$95 / 1.05 cents per mile = $9,047.62

Note that both calculations of the breakeven point after your first year ignore the Global Entry or TSA PreCheck application fee credit that you can get every four years on the Capital One Venture. So, if your spending is close to the breakeven point and you’d use this credit, it will make sense to get the Capital One Venture instead of the Capital One VentureOne.

Related reading: Credit card showdown: Capital One Venture Card vs. Capital One VentureOne Card

Bottom line

Paying an annual fee on a credit card may initially seem like a poor investment. However, under the right circumstances, the right card or cards can pay off many times by unlocking valuable earning opportunities, annual 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.

Related guides

Additional reporting by Nick Ewen.

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

Featured photo by Fairfax Media via Getty Images

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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.