Credit card annual fees can run over $600 — here’s how to decide if paying one is worth it for you
Published 7:17 AM EDT, Thu March 28, 2024
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Paying fees isn’t most people’s idea of fun, but the value you get from paying a credit card annual fee can outweigh its cost. While credit cards with annual fees have upsides worth exploring, you can also avoid them if minimizing costs is a priority.
You should be prepared to do a cost-benefit analysis to decide whether you should (or shouldn’t) get a card that charges an annual fee.
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What is an annual fee on a credit card?
Annual fees are what card holders pay to have a given credit card each year. Fees vary widely from one card to another; some cards charge no annual fee, while many popular travel credit cards have annual fees of around $100. Premium credit cards with high-end perks commonly have annual fees in excess of $500.
Your annual fee typically appears on the first billing statement you receive after opening your account (unless your card issuer waives the fee for the first year). In subsequent years, the fee will usually be applied to the first billing statement after your account anniversary, though the timing may vary depending on your card issuer and how your account anniversary aligns with your statement closing date.
You usually have until your next statement closing date (roughly 30 days) to decide whether you want to pay the fee and keep the card. If you cancel the card within that time frame, you will typically get a refund. Policies vary, so contact your card issuer to find out what options are available to you.
Like fees for cash advances and balance transfers, annual fees don’t count as regular spending. That means you won’t earn rewards for paying them, and the amount charged doesn’t count toward the spending requirement for your card’s welcome bonus (if there is one).
What are the benefits of paying credit card annual fees?
Cards with high annual fees tend to offer the most lucrative perks and rewards, while cards with low or no annual fees tend to offer less. Here are some of the benefits you may get from paying an annual fee on a credit card.
Better rewards earning rates
Credit cards with annual fees often earn cash back, points or miles at a higher rate than their no-fee counterparts. For example, the no-fee Hilton Honors American Express Card * The information for the Hilton Honors American Express Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. earns 7 Hilton Honors points per dollar on eligible purchases at Hilton properties, while the mid-tier Hilton Honors American Express Surpass® Card * The information for the Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. charges a $150 annual fee (terms apply, see rates and fees) and earns 12 Hilton Honors points per dollar on the same purchases.
All information about Hilton Honors American Express Card and Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored.
Better protections
Many no-fee credit cards come with basic benefits, but credit cards with an annual fee may provide superior travel and purchase protections. For example, both the no-fee Chase Freedom Unlimited® and the $95-per-year Chase Sapphire Preferred® Card provide rental car insurance that covers eligible expenses related to theft and damage of a rental vehicle. However, the Chase Freedom Unlimited offers secondary coverage that applies only to what isn’t covered by your personal car insurance policy, whereas the Sapphire Preferred offers primary coverage so you don’t have to get your own insurance involved.
Credits
Many mid-tier and premium credit cards offer statement credits to cover purchases in select categories. For example, the American Express® Gold Card * The information for the American Express® Gold Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. offers up to $10 in dining credits per month (enrollment required), while the Chase Sapphire Reserve® offers up to $300 in annual credit for a wide variety of travel expenses. If those credits cover purchases you would have made anyway, they effectively reduce the card’s net cost.
All information about American Express® Gold Card has been collected independently by CNN Underscored.
How to avoid credit card annual fees
Some credit cards are worth their annual fee, but getting a card with an annual fee isn’t compulsory. Here are some ways you can avoid annual fees.
Stick to no annual fee credit cards
The easiest way to avoid paying a credit card annual fee is to get a card that doesn’t charge one. You can get a wide variety of credit cards with no annual fee, including business credit cards, cash back credit cards and rewards credit cards. If you want an eye-popping welcome bonus and high-end perks, though, you probably won’t find what you’re looking for in a card with no annual fee.
Look for credit cards with annual fees waived the first year
Many cards that charge an annual fee offer to waive it during your first year as a card holder, giving you an opportunity to try the card out and decide whether it suits you. If it does, you can keep the card and pay the annual fee beyond that first year. If it doesn’t, you can close your account when the annual fee for the second year is charged or consider one of the options below.
Ask to have the annual fee waived
Credit card issuers are eager to retain valued customers, so they’ll sometimes waive your annual fee or offer a retention bonus (such as rewards or statement credits) as an incentive to keep your account open. The best time to inquire about these offers is after your annual fee is billed, but before you pay it. Getting a fee waiver or retention bonus is far from guaranteed. These courtesies may be reserved for big spenders who make card issuers a lot of money via swipe fees. There’s no harm in asking (no matter how much you spend), but don’t be surprised if you come up empty.
Downgrade an annual fee card to a no annual fee card
If you currently hold a credit card that charges an annual fee, you may be able to downgrade to a no-fee version of the same card or convert your card into an entirely different product with no annual fee. Customer service representatives can help you make the change if your account is eligible, but the tradeoff is that the downgraded card will likely offer fewer benefits and earn rewards at a lower rate.
Are credit cards with annual fees worth it?
Assuming your finances are in good shape, deciding whether to pay a credit card annual fee boils down to one fundamental question: Are you getting more value out of the card than you’re putting in?
If so, the annual fee is a justifiable expense; if not, the card likely isn’t a good fit. Before applying for a credit card with an annual fee, do some analysis to determine whether you’ll get a worthy return on your investment.
You’ll know the cost of your annual fee upfront, but assessing the value you get from a credit card is less straightforward. Many card benefits have subjective value (such as airport lounge access or elite status with an airline or hotel), so you’ll have to decide what they’re worth to you — think about how much you’d pay out of pocket to get the same benefits if your credit card didn’t offer them.
Even card benefits that appear to be worth a fixed amount (such as discounts or statement credits) can’t automatically be taken at face value for a variety of reasons:
- Usability: Your card’s annual fee is the same whether or not you use your benefits. If a benefit goes fully or partially unused (such as a hotel free night certificate or a monthly dining credit), that value is lost.
- Overstatement: Benefits aren’t always worth what card issuers claim. You may be able to get comparable benefits elsewhere for less, making the advertised “value” unrealistic.
- Redundancy: If you already have access to expedited airport security or rental car insurance, for example, then you get little or no added value from having it twice.
- Indifference: Benefits you don’t care about add little value. For example, an airline credit card that waives checked bag fees doesn’t do much for you if you travel exclusively with carry-ons.
On the other hand, you may value card features without clear monetary value, such as good customer service, a well-designed online account interface or a connection to your primary bank that facilitates bill payment and account management. None of those features is likely to be decisive on its own, but they warrant consideration.
Once you’ve taken all these factors into account and established what a card is worth to you, comparing its value to the cost of the annual fee is easy. However, if you’ll carry a balance on your card, that annual fee still isn’t worth it.
“If you’re carrying a balance, even occasionally, forget about the perks and get yourself a no annual fee card with the lowest rate you can qualify for and focus on paying off the credit card debt as quickly as possible,” said Greg McBride, chief financial analyst at Bankrate.com. Cards with 0% introductory annual percentage rates(APRs) can be good tools for paying off credit card debt, if you can qualify for one.
Frequently asked questions
Fees charged on credit cards intended for personal use are not deductible. However, annual fees charged on credit cards used exclusively for business purposes can reasonably be deducted as business expenses.
Credit card annual fees can be waived for military personnel who qualify under the Servicemembers Civil Relief Act. Policies vary among credit card issuers, so contact your card issuer directly to determine eligibility.
Credit cards with annual fees may include insurance benefits such as auto rental coverage, cell phone protection, and trip cancellation and travel accident insurance. However, such insurance benefits are not exclusive to credit cards with annual fees, as some no-fee cards offer similar coverage. Terms are specific to each credit card, so review your own card benefits for details.
To view rates and fees for Hilton Honors American Express Surpass® Card * The information for the Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. , please visit this page.
All information about Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored.
*The information for the following card(s) has been collected independently by CNN Underscored Money: Hilton Honors American Express Surpass® Card * The information for the Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. , Hilton Honors American Express Card * The information for the Hilton Honors American Express Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. , and American Express® Gold Card * The information for the American Express® Gold Card has been collected independently by CNN Underscored. The card details on this page have not been reviewed or provided by the card issuer. . The card details on this page have not been reviewed or provided by the card issuer.
All information about Hilton Honors American Express Surpass® Card, Hilton Honors American Express Card and American Express® Gold Card has been collected independently by CNN Underscored.
All information about American Express® Gold Card, Hilton Honors American Express Card and Hilton Honors American Express Surpass® Card has been collected independently by CNN Underscored.
Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.
This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.
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