How to Know If Your Credit Card Is Worth the Annual Fee
Credit card benefits are great, but how can you be sure they’re worth the annual fee? These annual fees can be significant – a 2019 study found that card fees averaged around $ 110 per year, although some cards charge much more, such as $ 550 for an Amex Platinum card or Chase Sapphire Reserve card. Here are some things to consider when you are trying to decide if these huge fees are worth it.
Is there a registration bonus?
A sign up bonus can go a long way towards offsetting the annual fee. For example, the Chase Sapphire Preferred card has an annual fee of $ 95, but it currently also offers a signup bonus of 80,000 points worth roughly $ 1,000, provided you spend $ 4,000 on the card in the first three months. However, a disclaimer: you should only spend that $ 4,000 if you can pay the full amount almost immediately and avoid paying interest. Otherwise, you shouldn’t chase the bonus.
Can you reimburse the annual fee without the signup bonus?
You will also want to take a close look at how many points you expect to earn given your ongoing expenses. Does the card offer point multipliers for specific spending categories that you will actually use? What is the monetary value of your bonus points? (Points Guy has an excellent guide compiling the redemption value of points bonus program here ). If you don’t think you will spend enough to offset the annual fee, think twice before signing up for a card. For example, excluding the welcome bonus, you would have to spend a total of $ 4,750 on dining and / or travel. a year to offset the $ 95 Chase Sapphire Preferred annual fee on CNBC . If this sounds reasonable to you, then it is probably worth it.
What are the benefits?
The Chase Sapphire Reserve Card (Sapphire Preferred) is a great example of a high-commission card that can be worth it for the avid traveler. It costs $ 550 a year, but you also get $ 300 travel vouchers, which effectively brings the cost down to $ 150, which can be offset by a host of other perks, from airport lounge access to reimbursement for Global Entry and TSA Pre- Check. application fees and more.
Generally speaking, reward cards can offer free accommodation, free checked baggage, travel insurance, priority boarding, or a host of other perks. Think about the monetary value of these benefits and decide if you should pay for them.
Are you a brand supporter?
If you travel frequently for business and prefer to stay in hotels that belong to one particular brand, it might make sense to pay a commission to accumulate extra points, even if the benefits are limited to that brand only (airline-specific co-op cards are a great example). Many branded cards don’t have an annual fee and their rewards are just as generous, so you’ll want to do your homework.
Don’t chase rewards if you have balance
If you always have a balance on your card, chances are, reward cards are not for you. Reward cards tend to have high interest rates, and one late payment can easily wipe out any benefits you earn.