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Until a couple of years ago, Bobby Hoyt avoided credit cards with annual fees. Not anymore.
These days, he carries a small-business card with an annual fee of $175, which is waived the first year. For him, the card’s rich ongoing rewards and benefits made it well worth the cost.
“I just didn't know you could get 3X points in a category, or get a 50,000-point sign-up bonus,” he says, explaining why he chose an annual-fee card over one with no annual fee. Hoyt, who founded the blog Millennial Money Man and lives in Houston, now uses the card to cover his business expenses.
It’s easy to overlook the potential value of a pricey credit card. For many, “free” seems like the best option: When asked about what they were looking for in a credit card, about 54% of respondents said they wanted a card without an annual fee, according to a 2017 online survey from credit bureau Experian.
But a no-annual-fee credit card can still cost you, indirectly. It could be keeping you from a better deal, especially if you:
Pay in full every month
Maintain good credit
Spend a lot in certain categories
“Don’t let an annual fee stand between you and the right card,” says Rod Griffin, director of public education for Experian. By swearing off cards with price tags, you might be missing out on the best deals.
You could be giving up a big sign-up bonus
When searching for a new rewards credit card, you might notice that most fall into two buckets:
Cards with sign-up bonuses worth over $200, or
Cards with no annual fee
Generally, you can’t have it both ways with the same credit card. So is a fatter welcome bonus worth the cost?
Oftentimes, yes — assuming you can easily redeem the rewards earned and meet the spending requirements without busting the budget. Setting aside other benefits and fees for a moment, consider how the value of these credit cards compare after the first year:
Sign-up bonus worth $500, $95 annual fee: $405 net return
Sign-up bonus worth $300, $75 annual fee: $225 net return
Sign-up bonus worth $150, $0 annual fee: $150 net return
With an annual-fee card that offers a huge sign-up bonus and waives the first-year annual fee, you could net even more. Plus, that giant promotion could cover a major portion of a vacation.
You might be forfeiting generous ongoing rewards
Getting the highest possible ongoing rewards in the categories that are most important to you may come at a cost. Consider these two cards, for example:
Card A: 3% back at U.S. supermarkets, $0 annual fee
Card B: 6% back at U.S. supermarkets, $95 annual fee
Other features aside, Card B would be the more valuable choice if you spent over $61 at U.S. supermarkets each week— despite the annual fee.
Cards with annual fees are also more likely to snag better rewards in niche categories. Hoyt’s small-business card, for example, gets him 3 points per dollar back on advertising for up to $100,000 per year.
"For me, because I own an online business, I do a lot of advertising,” Hoyt says. “I get a ton of points on something I have to spend money on anyway."
These bonus rewards add up fast. Recently, Hoyt used the points he earned through spending on his card to cover airfare to Aruba for him and his wife.
You might be passing up valuable side benefits
One of David Rae’s go-to cards carries an annual fee of $450. But the card gets him a companion certificate each anniversary year, among other perks. That certificate allows Rae to purchase two main cabin or first-class round-trip tickets for the price of one. Most recently, he used that perk to save on a holiday flight with his husband.
“For me, it was really easy to go, ‘Look: Forget everything else, but on this airline card, I got this free flight,” says Rae, a certified financial planner at DRM Wealth Management in Los Angeles, noting that the flight was valued at about $800. “I made at least $800 on that card.”
Aside from companion certificates, here are some other credit card benefits you’d be hard-pressed to find on no-annual-fee cards:
Waived checked-bag fees (worth $25 per checked bag)
A free annual hotel stay (worth upward of $100 a night)
Airport lounge access (usually worth $45-$59 per visit, depending on the lounge)
Statement credits that can be applied to travel costs (worth $100-$325, depending on the card)
These goodies are obvious steals for frequent travelers. But — surprise! — benefits like free checked bags, companion tickets and free hotel stays can also be valuable to once-a-year vacationers. Before striking a card from your list because of its annual fee, see how much value you can get from it.
Says Rae: “I look for the best value, not necessarily the lowest cost.”
This article was written by NerdWallet and was originally published by Forbes.