Guide to credit card annual fees
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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.”
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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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?
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:
- 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 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
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?
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.
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 (No longer open to new applicants) 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 Reserve, Chase Sapphire Preferred Card or Ink Business Preferred Credit Card (all of which charge annual fees).
The information for the Chase Freedom and Chase Freedom Unlimited 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:
- 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’s valuations peg the value of 35,000 Marriott points at $280)
- Hilton Honors Aspire Card from American Express ($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
- 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 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.
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.
What are some of the best cards with no annual fee?
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:
- Citi® Double Cash Card for fixed-rate cash back on purchases when you buy and when you pay
- Capital One® Quicksilver® Cash Rewards Credit Card for fixed-rate cash back on all purchases with no foreign transaction fees
- Chase Freedom Unlimited for fixed-rate cash back on purchases and elevated cash back on Lyft
- Wells Fargo Propel American Express® card for travel purchases
- Chase Freedom for rotating bonus categories
- Capital One® SavorOne® Cash Rewards Credit Card for dining and entertainment
- Bank of America® Cash Rewards credit card for flexible rewards structure
- Bank of America® Travel Rewards credit card for Bank of America Preferred Rewards customers
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:
- 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 and entertainment; 2% at grocery stores; 1% on everything else) vs Capital One® SavorOne® Cash Rewards Credit Card (No annual fee; 3% cash back on dining and entertainment; 2% at grocery stores; 1% on everything else)
- 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 ($95 annual fee, see rates and fees; 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, Capital One Spark Miles Select, Capital One Spark Cash and 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 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|
|Year One Sign-Up Bonus||20,000 bonus miles once you spend $1,000 on purchases within the first 3 months from account opening||Earn 100,000 bonus miles after you spend $20,000 on purchases within the first 12 months from account opening. Or still earn 50,000 bonus miles after you spend $3,000 on purchases within the first three months of account opening.|
|Everyday Earning||1.25 miles per dollar 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 80,000 miles you earn are worth $800 toward travel, but TPG’s valuations estimate you can get $1,120 in value from these additional 80,000 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.
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.
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- Is the Amex Platinum worth the annual fee?
- Is the Amex Green Card worth the annual fee?
- The Critical Points: The no-annual-fee cards that best the Chase Sapphire Reserve
- Reader credit card question: What are some alternatives to the Chase Sapphire Reserve?
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
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