Why Do Some Credit Cards Carry an Annual Fee?

Credit cards with annual fees typically offer bigger rewards or other desirable features.

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There are so many great credit cards on the market that don't carry an annual fee, you might wonder why anyone would choose to get one that does. After all, what's the point of paying up every year if you don't have to?

It's true that fees are one of the ways credit card companies make money. But it's also true that it can make sense to use a card with an annual fee, especially if you're building credit or interested in getting additional perks. Here’s why.

A secured card with an annual fee might come with the terms you want

If you have no credit or bad credit, there are a number of no-fee credit cards available. Sometimes, though, you can get a feature you want if you’re willing to pay an annual fee. (In these cases, the fee offsets the issuer's risk for offering these features.) Just be aware that the annual fee, plus an initial security deposit, can add up to a high upfront cost, so budget accordingly.

Here are some options:

If you don’t have a bank account: The OpenSky® Secured Visa® Credit Card has a $35 annual fee, and it doesn’t require you to have a bank account to apply. Like other secured cards, you must make a cash deposit, which becomes your credit limit. With the OpenSky® Secured Visa® Credit Card, you can fund the deposit with a check, debit card, money order or through Western Union.

If you’d prefer a lower interest rate: High annual percentage rates are a hallmark of many secured credit cards, but the $49-annual-fee First Progress Platinum Prestige Mastercard® Secured Credit Card is different. The ongoing APR is 9.99% Variable.

Rewards credit cards with annual fees can offer more benefits

Many rewards credit cards come packed with perks, from high cash-back earnings rates to travel rewards that make it possible to book deeply discounted vacations. But all of those statement credits, airport lounge hangouts and hotel room upgrades come at the cost of an annual fee.

Here are some examples of credit cards with rewards that may make an annual fee worth the cost:

For cash back: The Blue Cash Preferred® Card from American Express has an annual fee of $0 intro for the first year, then $95. If a decent chunk of your monthly budget goes toward groceries, streaming services and commuting costs, this card could be quite rewarding despite its cost. First, there’s a welcome offer: Earn up to $350 in statement credits: Earn 20% back on Amazon.com purchases on the Card within the first 6 months of Card Membership, up to $200 back. Plus, earn $150 back after you spend $3,000 in purchases on the Card within the first 6 months of Card Membership. You will receive cash back in the form of statement credits. Terms Apply. From there, you’ll earn 6% cash back at U.S. supermarkets on up to $6,000 per year in spending (then 1%), 6% cash back on select U.S. streaming services, 3% cash back on transit and at U.S. gas stations, and 1% on everything else (terms apply; see rates and fees).

For travel: The Chase Sapphire Reserve® has a jaw-dropping $550 annual fee, but it comes packed with benefits that can help reduce the cost. Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $900 toward travel when you redeem through Chase Ultimate Rewards®. You’ll get a $300 annual statement credit to cover travel purchases, plus a credit to cover the cost of the TSA Precheck or Global Entry application fee every four years (worth $85 and $100, respectively). Add in the points you earn through spending and the fact that points are worth 50% more when redeemed for travel through Chase Ultimate Rewards®, and you’ve made significant progress on whittling down that annual fee.

Nerdy tip: The prospect of earning rewards for each purchase makes it that much easier to justify impulse buys. This is obviously a win for credit card issuers. But if you choose a card carefully and stick to your budget, you can more than offset the cost of the annual fee with sign-up bonuses, ongoing rewards and other valuable extras.

Is paying an annual fee right for you?

There are many reasons an annual fee doesn’t need to be a deal breaker. Ultimately, your lifestyle and spending habits will have a big influence on the type of card you choose, fee or no fee.

One factor to consider is how much you charge to your credit card on a yearly basis. Every card is different, so you’ll have to do the math to figure out if you spend enough to make paying an annual fee worthwhile. Remember to base your calculations on both what you’ll earn in rewards on spending and the card’s sign-up bonus. Also, consider the value you’ll get from other perks offered by the card, such as travel credits.

Additionally, think carefully about whether you’ll actually use the rewards the fee-based card is offering. If you won’t, there’s nothing wrong with getting a card with no annual fee and a high rewards rate.


To view rates and fees of the Blue Cash Preferred® Card from American Express, see this page.