When Is a Credit Card Annual Fee Worth It?
Highlights from this article:
A card’s annual fee may be worth paying when its benefits are worth more than the fee.
You have to use the card’s perks on a regular basis to get value from them.
Welcome bonuses and intro offers can add value, but they're temporary and don’t eliminate the ongoing fee.
You may have seen the phrase “Is it worth it?” in credit card reviews or Reddit threads about specific cards. Answering that question often comes down to one calculation: whether the benefits are worth more than the annual fee.
That can be a tricky calculation to make, even if you’re a seasoned credit card user. The dollar value of a card’s benefits is a major consideration, but so are your lifestyle and spending habits.
A card’s benefits can’t just look good on paper. They have to add up to something meaningful you’re actually going to use.
What is a credit card annual fee?
A credit card’s annual fee is the price you pay to use the card for a 12-month period.
In most cases, this fee appears once a year on your account. However, some issuers charge a monthly fee instead of an annual fee. In that case, you would pay the fee every billing period.
The amount you pay depends on the type of credit card you have. As of this writing, the average annual fee is around $141, according to NerdWallet’s analysis of 160 credit cards that charge them. But annual fees ranged widely — anywhere from about $7 for a no-frills card to almost $800 for a premium one.
When is an annual fee worth it?
Annual fees are typically worth it if a card’s benefits outweigh the cost. To know whether that’s the case, you have to look at what those benefits are.
Free perks
Here’s a look at some common perks that come with credit cards and what they can cost on the open market.
BENEFIT | EXAMPLE COST |
|---|---|
A basic membership from CAA costs $80 a year. | |
A standard Priority Pass membership costs $99 USD a year, plus $35 USD per visit. | |
Foreign transaction fees vary by issuer, but many charge 2.5% per transaction made abroad. So, if you spent $100 on a dinner, for example, you might have to pay an additional $2.50. | |
Checked bags | Air Canada charges at least $45 for the first checked bag with basic and standard economy tickets. |
Costs vary greatly, but according to Rates.ca, a healthy 35-year-old man taking a 10-day trip may expect to pay roughly $25 for $2 million in coverage. |
If your card offers some or all of these benefits for free, it may cancel out the cost of the annual fee.
For example, a card like the Tangerine Rewards World Elite Mastercard has an annual fee of $120. It comes with four DragonPass airport lounge passes with a value of about $200. The passes alone are worth more than the annual fee.
That said, if you only travel once or twice a year, and don’t typically travel with friends or use airports with DragonPass lounges, will you get any value from these passes? Will you have to fly more often, and incur additional costs, just to use the passes?
These are the kinds of questions to ask yourself when weighing the value of a card’s benefits.
Built-in extras
It’s also worth considering practical benefits that may not necessarily have a cash value.
For instance, extended warranty and purchase protection can offer peace of mind and be extremely beneficial if you ever need to make a claim. Other perks, like American Express Experiences, might be valuable enough to pay for if you regularly want early access to events like concerts or comedy shows.
Welcome bonuses
Many cards offer sign-up bonuses to new cardmembers. These promotional offers can come in the form of extra rewards points, higher earn rates, lower interest rates and more.
Depending on the bonus, the card and your lifestyle, the welcome bonus might be worth more than a card’s annual fee — in the first year.
A welcome bonus is typically temporary or a one-time deal, so it shouldn’t factor into your long-term value calculation. You’ll still need to pay the annual fee once the promotion has expired. (Same goes if you get a card that waives the annual fee in the first year.)
Another important consideration is whether you’ll even qualify for all of a card’s bonus offers. A welcome bonus might require hitting a spending threshold that doesn’t align with your spending habits. You don’t want to overspend just to chase a bonus, especially if the bonus is what makes the card’s fee worthwhile in Year One.
Rewards points and cash back
Rewards and cash-back cards can help you recoup money and earn points on everyday purchases, which can cover the cost of a card. Ideally, you want those savings to total more than the annual fee.
For example, if you spend roughly $400 a month on groceries and your card offers 3% cash back at the supermarket, you would earn $12 back a month, or $144 by year’s end. If the card’s annual fee was, say, $110, you would not only cover the cost but earn an additional $34.
Banks sometimes waive a credit card’s annual fee if you sign up for one of their premium bank accounts.
What about a no-fee card?
Depending on your credit card use and lifestyle, it might not make financial sense to get a card that charges an annual fee. Paying hundreds of dollars a year for perks you can’t or won’t use is basically giving your money away.
If you just need a no-frills card to use when cash isn’t an option, there are plenty of no-fee credit cards to choose from.
Some no-fee cards we like include:
The Scotiabank American Express® card, which allows you to earn Scene+ points.
The Tangerine® Money-Back World Mastercard®*, which offers elevated cash back earn rates on spending categories of your choosing.
The Neo World Mastercard®*, a cash back option with a 2% earn rate on gas and grocery purchases.
No-fee cards are generally light on benefits, and their rewards earn rates can be limited. But if the perks don’t matter to you — and it’s fine if they don’t — consider opting for a card that won’t cost you anything to keep in your wallet.
DIVE EVEN DEEPER
Georgia Rose