Why You Should Be Paying Annual Fees for Your Credit Cards

If you use only cards without annual fees, you might miss out on the earning power or travel perks.
Jason SteeleJan 8, 2021

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

For a lot of people, paying an annual fee to use a is out of the question. For some, the very idea is an outrage. But often, this attitude is more emotional than rational. In fact, many credit card users have more to gain by paying an annual fee — and in some cases, even a very high annual fee. Here’s why.

Would you pay $100 to save $200? Of course you would, but this logic isn’t clear to devotees of cards that charge no annual fees. To see how you can come out ahead paying a fee, compare cash-back cards that come in versions both with and without an annual fee.

For example, American Express offers the and the . The -annual-fee  offers 3% cash back on up to $6,000 per year at U.S. supermarkets, 2% cash back at U.S. gas stations and at select U.S. department stores, and 1% cash back on all other purchases. Terms apply.

The has a annual fee but pays 6% cash back on up to $6,000 per year at U.S. supermarkets and on select U.S. streaming services, 3% cash back at U.S. gas stations and on transit purchases (such as taxis, rideshare services, parking, tolls and trains), and 1% cash back on all other purchases. Terms apply.

With a little math, the choice is clear. If you spent just $265 each month on groceries using the , the additional 3% cash back (for a total of 6%, as compared to the 3% earned on the card without an annual fee) would equal $95. Spend more than $265 and you’re coming out ahead while also getting 6% back on streaming services like Netflix and Spotify, and 3% back on transit purchases and gas. Terms apply.

These two AmEx cash-back cards aren’t outliers. You can reach similar conclusions if you compare cards like the -fee , which pays 3% cash back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart® and Target®), plus 1% on all other purchases, with the , which pays 4% cash back on dining and entertainment plus a welcome bonus: . The annual fee is .

» Learn more:

Credit cards that earn travel rewards can often get you even more value than you would get from a cash-back card. And while there are some travel rewards cards with no annual fee, they are typically poor substitutes for the premium versions that carry an annual fee.

For example, take the , which has a annual fee, and compare it to the , which has an annual fee of . Both cards offer 2x miles at restaurants and on Delta purchases, and 1 mile per dollar spent elsewhere. But the also offers 2x miles at U.S. supermarkets, and a free checked bag on Delta flights. Terms apply.

The also offers new applicants a nice welcome bonus: The has a smaller welcome bonus:

You can see this pattern over and over again when comparing travel rewards cards that charge an annual fee against their no-annual-fee counterparts.

Several ultra-premium travel rewards cards have annual fees in the $450 to $600 range. Though these pricey cards aren’t for everyone, many frequent travelers can easily justify those annual fees. For example, the has a annual fee. In return, cardholders get a $300 annual travel credit and a $100 credit toward Global Entry or TSA Precheck every four years. If you count the credit as being worth an average of $25 per year and add in $120 of Peloton credit and $60 for DoorDash, you're quickly over $500 in just statement credits.

Plus, you get up to 10x points on Chase dining, hotel and car rentals booked through Chase Ultimate Rewards®, 5x points on air travel booked through Chase Ultimate Rewards® and 50% more redemption value when you use your points to book travel through Chase Ultimate Rewards®.

The charges a much lower annual fee: and gets the same 3x on dining and a lower 2x on travel booked outside of the Chase Ultimate Rewards® portal. But because you’re missing out on the travel credit and Global Entry or TSA Precheck credit, your real savings aren’t what they seem. With the , you get only up to 5x points and 25% more redemption value when you book in the Chase travel portal.

Plus, customers miss out on benefits like a Priority Pass Select membership (which gives you and up to two guests access to over 1,300 lounges around the world and credits of $28 per person, per visit at many airport restaurants) and 10x points on Lyft purchases (compared to the less expensive card’s 5x points on Lyft).

With these benefits, cardholders can get a lot more value than holders of the lower-annual-fee card — more than enough to offset the price difference. Again, you see the same value when comparing ultra-premium cards like and other lower-fee AmEx travel cards.

» Learn more:

You can be an extremely frugal person yet still see the value in paying a high annual fee to use a credit card. So long as the value of the benefits you receive exceeds the cost of the annual fee, you’ll always come out ahead.

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the , including those best for:

On a similar note...
Dive even deeper in Travel