How to Tell If Your Credit Card Is Worth the Annual Fee

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Illustration for article titled How to Tell If Your Credit Card Is Worth the Annual Fee

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Credit card perks are great, but how can you be sure they’re worth the annual fee? These yearly charges can be significant—a 2019 study found that card fees average nearly $110 annually, although some cards charge a lot more, like the $550 fee for the Amex Platinum Card or Chase Sapphire Reserve. Here are some things to consider when you’re trying to decide whether those hefty fees are worth it.

Is there a sign-up bonus?

A sign-up bonus can go a long way toward making up for an annual fee. For example, a Chase Sapphire Preferred card carries a $95 annual fee, but it’s also currently offering an 80,000 point sign-up bonus worth roughly $1,000, provided that 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 back the full amount almost immediately and avoid paying any interest. Otherwise, the bonus isn’t worth chasing.

Can you offset the annual fee without a sign-up bonus?

You’ll also want to look carefully how many points you expect to earn based on your existing expenditures. Does the card offer point multipliers for certain spending categories you’ll actually use? What’s the cash value of your reward points? (The Points Guy has an excellent guide compiling the redemption value of reward program points here). If you don’t think you’ll spend enough to offset the annual fee, think twice about signing up for the card.

For example, excluding a welcome bonus, you’d have to spend a combined $4,750 on dining and/or travel each year to offset the Chase Sapphire Preferred’s $95 annual fee, per CNBC. If that seems reasonable to you, then it’s probably worthwhile.

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What are the perks?

The Chase Sapphire Reserve card (the premium version of the Sapphire Preferred) is a great example of a card with a hefty fee that might be worth it for the avid traveler. It costs $550 per year, but you also get $300 in travel vouchers, effectively bringing the cost down to $150, which can be offset by a host of other perks, from airport lounge access, to reimbursement for the Global Entry and TSA Pre-Check application fees, and more.

Generally speaking, premium cards might offer free stays, free checked bags, travel insurance, priority boarding, or a variety of other perks. Think about the cash value of these perks and decide if the fee is worth it for you.

Are you a brand loyalist?

If you’re a frequent business traveler and tend to stay at hotels associated with one particular brand, it might make sense to pay a fee to accrue extra points, even if the benefits are limited to just that brand (co-branded cards for a specific airline are a great example). A lot of branded cards have no annual fee and their rewards are just as generous, so you’ll want to do your homework.

Don’t chase rewards if you carry a balance

If you always carry a balance on your card, rewards cards probably aren’t for you. Rewards cards tend to have high interest rates, and one late payment can easily negate any benefits you’re earning.

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