It’s not hard to find a decent rewards credit card with no annual fee. And for a lot of frugal spenders, going fee-free is ideal. But with many annual fee credit cards, you can get plenty of perks and rewards to make up for the yearly charge, and then some.
Reasons to apply for a credit card with an annual fee
Many consumers wouldn’t even consider a card with an annual fee, mostly because it’s often not clear exactly how the card’s benefits make up for it. “It’s important for consumers to do a cost-benefit analysis” to find out if the card is worth it, says Hameer Ruparel, head of acquisition for branded cards at Barclaycard U.S.
1. More robust rewards
Credit card issuers offer rewards as an incentive to keep you spending. “Most credit cards with an annual fee have a value proposition that backs the annual fee,” Ruparel says. “They offer a richer reward structure.”
For example, the Blue Cash Preferred Card from American Express® offers 6% cash back on up to $6,000 spent at grocery stores each year. Those bonus rewards are partially offset by a $95 annual fee. It’s no annual fee counterpart, the Blue Cash Everyday Card from American Express®, offers just 3% cash back at grocery stores up to $6,000 spent annually.
If you max out the bonus rewards with the Blue Cash Preferred, you’ll earn $180 more in rewards than if you were to max out the $6,000 limit on the Blue Cash Everyday. In fact, you’d only need to spend $267 a month at grocery stores for the Blue Cash Preferred to beat out the Blue Cash Everyday.
2. Bigger sign-up bonuses
With no annual fee cards, you’ll typically see a sign-up bonus worth $100 to $200 – and sometimes there’s no bonus at all. With some annual fee travel credit cards, however, you may see sign-up bonuses worth as much as $1,000. Sometimes you’ll even find a limited-time offer worth more.
Depending on the card, it’s sign-up bonus can cover years worth of annual fees. That’s on top of the better rewards, too. For example, the Capital One Venture charges a $59 annual fee after the first year. It makes up for it by offering a sign-up bonus worth $400 and two-times rewards on all purchases. Compare that to the Capital One VentureOne, which has no annual fee but gives you only a $200 sign-up bonus and 1.25 times rewards.
The extra sign-up bonus with the Venture gives you more than enough time to earn better rewards to beat out the VentureOne.
3. Annual bonuses
Some annual fee travel cards offer an anniversary bonus worth more than their annual fee. For example, the Marriott Rewards Premier gives you a certificate each year for a free night at select hotels. Depending on how you use it, the free night can be worth far more than the card’s $85 annual fee. If you can find a card like this, you don’t even need to use it for the annual fee to be worth it.
4. Extra benefits
Some annual fee credit cards add a slew of non-rewards perks to keep you happy. “Some of the benefits associated with a card don’t necessarily have a dollar value,” Ruparel says.
These benefits can include airport lounge access, travel credits, free checked baggage, elite status, and presale ticket access to shows and events. It can be tough to assign a value to some of these perks. But you can usually get a ballpark figure if you know how often you typically travel each year and how much you’d use them and other incentives.
“If the consumer’s lifestyle is aligned with the rewards offered by a credit card with an annual fee,” says Ruparel, “it is a good idea to consider that card.”
Deciding whether an annual fee is worth it takes research and a little soul-searching. First, you have to take stock of the card’s benefits and rewards. Calculate how much you typically spend in a month then you can see how much you’d probably earn in rewards over the year. Then put those up against the card’s annual fee.
You also need to determine whether you even care about the card’s added benefits. For example, if a card offers airport lounge access but you fly only once a year, you may not care as much as someone who travels multiple times a month.
Take a look on SuperMoney at the top credit cards for both general rewards and travel and choose a few that charge annual fees. Once you’ve done some research and calculations with each, you’ll be in a better position to decide if an annual fee credit card is worth it to you.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.