Credit Card Annual Fees (and why I pay $3,000/year)

Credit Card Basics

Credit Card Annual Fees (and why I pay $3,000/year)

If you've never paid an annual fee on a credit card, you may be skeptical of whether it's really worth it. Your no-fee card may earn you points and have some benefits, like car rental insurance and fraud detection. Why would you need to pay $90+ for a credit card — or, if you're like us, a stack of cards?

We think annual fees can be worth it, so let's break down when and why it might be worth paying an annual fee on a card.

The First Year

The first year you have a card, you can primarily weigh the annual fee against the bonus you will earn from the card. You can also consider other benefits that come with the card.

I don't do an in-depth calculation the first year — I mostly look at the welcome offer compared to annual fee.

After the First Year

Whether or not a card is worth keeping beyond a year comes down to the card's benefits and how you use them. This varies from person to person. If you are not using the card benefits, it's probably not worth having.

If you travel even once a year, there's a good chance that there's a card (or a few) out there with an annual fee that will pay for itself and that will be worth not just opening, but keeping year after year.

That's because many cards come with benefits like trip delay and trip interruption insurance, lost baggage reimbursement, primary car rental insurance, extended warranty protection, and cell phone protection. If you find value in these insurances and protections, that alone may be worth an annual fee.

Other cards come with statement credits, yearly bonuses, and other freebies that equal more than the annual fee of the card.

When Are Annual Fees Worth It?

The first year when you qualify for the sign up bonus

When the card has benefits you value, such as travel insurance, extended warranty, and purchase protection

When the card comes with statement credits, yearly bonuses, and other freebies that exceed the annual fee

If you are able to get a retention offer that offsets the annual fee

Examples of Cards Worth Keeping For Us

Chase Sapphire Reserve®

$795 annual fee

This is the highest fee card we hold and for most people, that steep annual fee seems crazy at first! I don't recommend it to most beginners because it's an extra thing to manage. But for us, this is the math on why this one makes sense.

Every year we get two statement credits for StubHub that are $150 for a total of $300. We find these easy to use for last minute Cubs tickets or theater shows. We also get 2x Dining Credits for certain restaurants ($150 each, total of $300). We use these for date nights.

This card also has the easiest to use travel credit of any card -- any travel purchase -- parking, public transit, hotels, etc -- just comes off as a statement credit, up to $300 each cardmember year.

Between those 3 benefits, I already have $900 of value -- already more than my annual fee. And I still get other perks like lounge access and other credits.

Southwest Rapid Rewards Cards

Varies by card

These cards help us get assigned seats for free and also free checked bags (though we rarely use the checked bag benefit). We also get anniversary points each year on our account anniversary.

Hotel cards

~$99 annual fee

With an annual fee of around $99, there are a few hotel cards we love to keep! That's because these come with an annual free night certificate. How these work varies by hotel brand but in general I think of them like a pre-paid, discounted vacation.

I generally find the annual anniversary night to be worth a minimum of $200, but if you find the right deal, it can exceed that value. My craziest redemption with a free night certificate happened during a short period that almost was a bit of a glitch in the IHG Rewards program -- we booked a night in Florence at a $1500/night suite using a Free Night Award + 17,000 points. That one won't be repeatable but we do often use our free night certificates for staycations in Chicago.

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