So, you’ve just received a shiny new credit card offer in the mail, and it looks pretty tempting—rewards, perks, maybe even some travel miles. But then you notice the small print: “Annual fee: $95.” Now you’re wondering, “Is it worth paying a credit card annual fee?”
Let’s break it down together, starting with what the annual fee on a credit card is, why it exists, and how to determine if the credit card is still a good deal.
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What is an annual fee on a credit card?
A credit card annual fee is a charge that the issuer requires you to pay once a year just for using their card. Think of it as a membership fee for a club that offers you various benefits. Some cards have this fee, and others don’t.
The annual fee can range from as low as $25 to as high as $500 or more, depending on the card’s features. But here’s the thing: Not all cards with an annual fee are created equal. Some offer fantastic perks that can easily outweigh the cost of the fee, while others might leave you wondering if it’s just money down the drain.
Why do credit cards have annual fees?
Cards with annual fees often provide a host of premium features that no-fee cards don’t offer. This can include higher reward rates, exclusive access to airport lounges, travel insurance, and other perks that can add significant value—especially if you use your card frequently and strategically.
For some cardholders, the annual fee is like an investment, since they're paying up front for the opportunity to enjoy these benefits throughout the year. Whether or not this investment pays off depends on your spending habits, lifestyle, and how well you can take advantage of the card’s offerings.
But it’s not just about the cardholder’s perspective. According to Andrew Gosselin, personal finance expert and Chief Financial Strategist of The Calculator Site, issuers also have reasons for these fees. “Cards aimed at higher risk consumers with poor credit histories also tend to charge annual fees as a way for issuers to mitigate the risks associated with lending to those individuals,” he says.
Is a credit card with an annual fee worth it?
The big question looms: “Is a credit card with an annual fee worth it?” The answer isn’t one-size-fits-all—it really depends on what you need and how you plan to use the card.
Here’s how you can decide:
1. Consider your spending habits
Do you spend enough in the card’s bonus categories (like travel, dining, or groceries) to make the rewards worth more than the fee?
If your card offers 3% cash back on travel and you spend $3,000 a year on vacations, for example, that’s $90 back in your pocket—which may make sense when you’re considering a $95 fee. But if you’re not a big spender in these areas, a no-fee card might be a better fit.
2. Evaluate the perks
Some cards offer perks that can far outweigh the annual fee. Think about things like free checked bags on flights, priority boarding, or hotel upgrades. If you travel often, these benefits can easily add up to more than what you’re paying in fees.
3. Compare with no-fee cards
Ask yourself, “Is it good to get a credit card with no annual fee instead?” No-fee cards can be a great alternative if you don’t want to worry about recouping the cost of a fee each year.
4. Do the math
A little math is a must. Add up the potential rewards and perks you’ll earn in a year and subtract the annual fee. If you’re still in the positive, the card could be worth it. If not, you might want to reconsider.
“Take time to value the card's benefits and whether you would use perks like lounge access or credits—often people pay for things they don't actually use, so I always recommend to really know your preferences,” Gosselin says.
How and when do you pay the annual credit card fee?
Typically, credit card issuers charge the annual fee when you first open your account and then annually on your account anniversary. The fee is automatically added to your statement, just like any other charge. You’ll need to pay it along with your regular minimum payment to keep your account in good standing.
How can I waive my credit card annual fee?
Can you avoid paying a credit card annual fee? Here’s a pro tip: Try negotiating with your card issuer to have the fee waived, especially if you’re a long-time customer or you’ve been using the card actively with a high monthly balance.
Contact your credit card issuer to ask if they can waive the fee, and don't forget to have your arguments ready. Sometimes, they might offer to waive it to keep your business, especially if you’ve been a loyal customer.
Is it OK to cancel a credit card that has an annual fee?
Sure, but there's no reimbursement of the fee. You won't get your money back or be able to use your benefits once the card is canceled.
Also consider the impact on your credit score before canceling, since closing an account can affect your credit utilization ratio and the average age of your credit accounts.
Bottom line: Is it better to get a card with an annual fee?
It all depends on your spending habits and what you value in a credit card. Cards with annual fees typically offer more robust rewards and perks than no-fee cards. Do the math and see if the provided benefits surpass the amount you already spend. If you're a high-spender, paying an annual fee on a credit card might make sense, especially with the possibility of waiving the fee in the future.