Why Credit Cards With Annual Fees Are Actually Worth It

Last updated Dec 14, 2018 | By Jason Steele

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Have you ever received a credit card offer in the mail and written it off really quickly once you realize there's an annual fee you have to pay to keep using the card year after year? 

I have plenty of friends who refuse to pay any kind of fee to use a credit card, and I kind of get it, but I completely disagree with them. 

Nobody likes paying an annual fee to use a credit card, but it may be worthwhile to get one. 

Here's why.

Would you pay $75 to earn $180 more?

Most people would.

The biggest reason it's a good idea to get a rewards card with an annual fee is just simple math; by paying an annual fee (usually a reasonable amount), you'll earn more throughout the year than if you were to just stick with the free version of the same card. 

Here's an example:

The Blue Cash Everyday Card from American Express is a perfectly good cash back rewards card with no annual fee. It offers up to 3% cash back at supermarkets (up to $6,000 each year), 2% cash back at gas stations, and 1% cash back on everything else. It's a straightforward and easy card to use.

But let's say you want to step up your game and get the Blue Cash Preferred Card from American Express. This card has a $95 annual fee, which in my opinion, is easily justified. You'll get a bigger percentage of 6% cash back on groceries, 3% cash back at gas stations, and 1% cash back on other purchases (that one stays the same). 

That 3% difference might not seem like a lot, but over time, the card pays for itself. 

Let's say you regularly spend $500 a month at a grocery store. Besides food, this could also include prescriptions, kitchen supplies, gifts, flowers, and more. By the end of the year, you will have spent a total of $6,000, which is the limit on maxing out the 6% cash back rewards with the Blue Cash Preferred (the one with the fee), and you'd earn $360 in cash back. 

I know that's a lot, but what it means is even after paying the annual fee, you'd still have $105 in cash back that you wouldn't have had if you went with the no annual fee card. 

What's more is that the example above doesn't even include the 3% cash back at gas stations or the 1% cash back on all other purchases, so when all is said and done, you'll likely earn closer to $200 cash back each year, even when the annual fee is counted.

What about travel rewards cards?

Now that you've seen the simple math of how paying an annual fee can actually be worthwhile on cash back cards, I want to jump over to the best travel credit cards. 

Many airlines offer rewards credit cards with an annual fee of roughly $95. Some of the benefits often included are priority boarding, free checked bags, frequent flyer miles, and access to airport lounges. 

But the question is: Are they worth it?

As an avid traveler, I say yes. 

Take, for example, the United Explorer Card. This card has no annual fee for the first year, then goes up to $95 each year after that.

But the reason why this card easily pays for itself? Free first checked bags (up to $120 per roundtrip). Checked bags can get expensive and out of all the noteworthy benefits this card offers, you only need one to make back the cost of your annual fee. 

Need more convincing? Most of these cards offer fantastic sign-up bonuses of 25,000 to 50,000 miles, which are easily worth a few years of the annual fee. 

The Takeaway

Signing up for a top rewards credit card with an annual fee is oftentimes completely worth it if you're able to take advantage of the perks.

My honest advice is that you shouldn't sit on the sidelines while all the great rewards go to those who are willing to pay a reasonable annual fee. Get in the game and start enjoying the rewards and benefits you can easily earn with one of these cards.