Guide to credit card annual fees
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Since I write about 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, 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 annuals fees. But paying an annual fee can 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.
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 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.
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:
- The best credit cards for active-duty military
- Why the Amex Platinum card is best for active-duty military
- The best Chase Sapphire Reserve benefits for active-duty military
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 paying the annual fee and keeping the card more appealing.
Cards that usually have annual fees
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.
When is it worth paying a credit card annual fee?
Paying a credit card annual fee can make sense on select cards for the following 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.
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.
Types 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).
Annual credits, bonuses or free nights
The annual bonus provided by select cards can also justify paying an annual fee. After all, these bonuses 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 (enrollment required for select benefits).
- American Express® Green Card ($150 annual fee, see rates and fees): Up to $100 Clear credit each calendar year and up to $100 LoungeBuddy credit each calendar year
- 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 and Amex Green 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.
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 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.
What are some of the best cards with no annual fee?
Everyone should get (and keep) a no-annual-fee credit card. This advice holds even if you already have several cards that charge annual fees. There are many credit cards with no annual fees, but here are some of my favorites:
- Citi® Double Cash Card: Best for fixed-rate cash back
- Capital One Quicksilver Cash Rewards Credit Card: Best for fixed-rate cash back with no foreign transaction fees
- Chase Freedom Unlimited: Best for cash-back rewards if you plan to build a Chase Trifecta or Chase Quartet
- Wells Fargo Propel American Express® card: Best for travel purchases
- Chase Freedom Flex: Best for rotating bonus categories
- Capital One SavorOne Cash Rewards Credit Card: Best for dining and entertainment
- Bank of America® Customized Cash Rewards credit card: Best for flexible rewards structure
- Bank of America® Travel Rewards credit card: Best for Bank of America Preferred Rewards members
The Wells Fargo Propel card is no longer available for new applicants. The information for this 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.
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 premium card with an annual fee. Sometimes annual fees are justified by extra benefits, but sometimes they’re not. A few such cards are:
- Capital One Venture Rewards Credit Card ($95 annual fee; 2x miles on everything) vs Capital One VentureOne Rewards Credit Card (No annual fee; 1.25x miles on everything)
- Capital One Savor Cash Rewards Credit Card ($95 annual fee; 4% cash back on dining, entertainment and popular streaming services; 3% at grocery stores (excluding superstores like Walmart and Target); 1% on everything else) vs Capital One SavorOne Cash Rewards Credit Card (No annual fee; Earn unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart® and Target®),plus 1% on all other purchases.
- Capital One Spark Miles for Business ($95 annual fee that’s waived the first year; 2x miles on everything) vs Capital One Spark Miles Select for Business (No annual fee; 1.5x miles on everything)
- Capital One Spark Cash for Business ($95 annual fee that’s waived the first year; 2% cash back on everything) vs Capital One Spark Cash Select for Business (No annual fee; 1.5% cash back on everything)
- Hilton Honors American Express Surpass® Card ($0 intro annual fee (see rates & fees) for the first year, then $95 (see rates & fees). Offer ends 8/25/2021; 12x Hilton points at participating Hilton properties; 6x at U.S. restaurants, U.S. supermarkets and U.S. gas stations; 3x on all other eligible purchases) vs Hilton Honors American Express Card (No annual fee, see rates and fees; 7x Hilton points at participating Hilton properties; 5x at U.S. restaurants, U.S. supermarkets and U.S. gas stations; 3x on all other eligible purchases)
The information for the Capital One Savor, Capital One Spark Miles Select, Capital One Spark Cash Select 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 to 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 of these cards:
|Capital One VentureOne||Capital One Venture|
|Year one sign-up bonus||20,000 bonus miles once you spend $500 on purchases within the first 3 months from account opening||Earn 60,000 bonus miles after you spend $3,000 on purchases within the first three months of account opening.|
|Everyday earning||1.25 miles per dollar spent||2 miles per dollar spent|
|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 15+ travel partners
|Foreign transaction fees||None||None|
The Capital One Venture has a higher sign-up bonus and a Global Entry or TSA PreCheck application fee credit (up to $100) that you can use every four years. But, if you’re not sure which card would be better for you long-term, let’s look at the break-even point after your first year.
The following calculations 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. As such, 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. In this case, 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
Both calculations 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.
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, 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.
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 dolgachov/Getty Images.
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