Guide to credit card annual fees

Jan 28, 2021

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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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In This Post

What is a credit card annual fee?

Woman holding a wallet with cards
(Photo by Orli Friedman/The Points Guy)

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: 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 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.

Related: 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 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 paying the annual fee and keeping the card more appealing.

Related: 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 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: How to assess and build your credit card portfolio

When is it worth paying a credit card annual fee?

Lounge access is a popular card perk that can provide significant 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.

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 ReserveChase Sapphire Preferred Card or Ink Business Preferred Credit Card (all of which charge annual fees).

Related: Airline miles that are hardest to earn — and why you want them anyway

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:

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.

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

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 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: 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)

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:

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. 

Related: These are the 11 best no-annual-fee credit cards for 2021

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

woman and baby with laptop and credit card
(Photo by Cavan Images / Getty Images)

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:

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
Annual fee $0 $95
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.

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, 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.

Delta SkyMiles® Platinum American Express Card

Earn 50,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new card in your first three months of card membership. Plus, earn up to $100 back in statement credits for eligible purchases at U.S. restaurants with your card within the first 3 months of membership.

With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.

Apply Now
More Things to Know
  • Earn 50,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new Card in your first 3 months.
  • Plus, earn up to $100 back in statement credits for eligible purchases at US restaurants with your card within the first 3 months of membership.
  • Accelerate your path to Medallion Status, with Status Boost®. Plus, in 2021 you can earn even more bonus Medallion® Qualification Miles (MQMs) to help you reach Medallion Status.
  • Earn 3X Miles on Delta purchases and purchases made directly with hotels.
  • Earn 2X Miles at restaurants worldwide, including takeout and delivery and at U.S. supermarkets.
  • Earn 1X Miles on all other eligible purchases.
  • Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. *Payment of the government imposed taxes and fees of no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
  • Enjoy your first checked bag free on Delta flights.
  • Fee Credit for Global Entry or TSA Pre✓®.
  • Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
  • No Foreign Transaction Fees.
  • $250 Annual Fee.
  • Terms Apply.
  • See Rates & Fees
Regular APR
15.74%-24.74% Variable
Annual Fee
$250
Balance Transfer Fee
N/A
Recommended Credit
Excellent/Good
Terms and restrictions apply. See rates & fees.

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.