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When is a credit card annual fee worth it?

Before shelling out up to three figures per year for a rewards card, be sure it meets your spending needs and offers perks you’ll use

Summary

A growing number of people are happily shelling out $100 to $500 or more for lucrative cards that promise huge sign-up bonuses and valuable perks. But how can you tell if a premium rewards card is right for you? Following are six questions you must ask yourself before signing up.

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Committing to paying hundreds of dollars a year in annual fees just to own a high-end card may sound crazy to some.

But a growing number of people are happily shelling out $100 to $500 or more for lucrative cards that promise huge sign-up bonuses and perks that are often worth three figures themselves.

But how can you tell if a premium rewards card is right for you?

According to credit card expert Beverly Harzog, it often comes down to what kind of spender you are, how often you travel and how willing you are to put time and effort into learning about a card’s rewards program.

“You can profit quite a bit from these cards,” says Harzog, a credit card expert with U.S. News and World Report.

But rewards cards with annual fees aren’t for everyone. To get the most out of a premium rewards card, you often have to be very organized and pay attention to your spending, she says.

If you’re hoping to maximize your rewards value and score a free vacation, you also need to be willing to put in the time to evaluate credit card and airline loyalty programs – which can sometimes be maddeningly complex.

But if that doesn’t deter you, odds are you’ll come out well ahead. Some of the best premium rewards cards offer so many freebies, it’s relatively easy to recoup the cost of your annual fee.

“If you sit down and read the fine print, you might be pretty surprised by how much you can get out of these cards,” says Harzog.

See related: I’m finally going to pay an annual fee

Why spend money on a premium rewards card?

The latest generation of premium rewards cards aren’t just empty status symbols. Many of the best cards offer so much value that even budget-minded 20- and 30-somethings are snapping them up and gladly paying annual fees equivalent to a round-trip airline ticket.

According to travel blogger Rand Shoaf, the savviest cardholders see premium rewards cards as an important tool for saving money, rather than as glitzy status symbols that help you flaunt your wealth.

Meanwhile, credit card issuers have taken notice and have begun crafting rewards programs with increasingly lucrative perks. The Chase Sapphire Reserve, for example, is so famously popular with millennials and other value-conscious consumers it has helped trigger an arms race among rewards card issuers. (Though its annual fee is increasing from $450 to $550 for new cardholders beginning Jan. 12, 2020 and existing cardholders in April.)

That has sparked a trend toward high-value benefits, such as travel credits so generous they help cancel out the annual fee.

Meanwhile, American Express’s line of charge cards – which have long reined as a favorite among affluent customers – have also become increasingly valuable in recent years as American Express adds contemporary perks, such as Uber credits.

Shoaf says he’s been surprised by how many people he knows who are carrying around cards that cost three figures a year.

“Before, people would shake their head at that,” says Shoaf, who runs the travel rewards blog, Well Traveled Mile.

But now, people are increasingly recognizing they can save a significant amount if they’re willing to invest some money upfront.

According to Mercator Advisory Group, around 30% of cardholders say they currently have at least one premium rewards card in their wallet.

How to find a premium card that’s right for you

Not all premium rewards cards are a good deal, though, so it’s crucial to do your research before you settle on a card.

Some cards offer more pizazz – and heavily marketed metal – than rewards substance. Others are great for frequent travelers but are grossly overpriced for everyone else.

To find a card that’s worth paying money for, you’ll not only want to think about what kinds of rewards programs you’d enjoy. You also need to think about whether you’ll be able to take advantage of all that a card has to offer.

Sleek perks such as airport lounge access may sound exciting. But if you’re never in an airport long enough to spend more than a few minutes in a lounge, then that perk will just go wasted.

“A lot of times people will get caught up in the promotions,” says Mero Geesey, a travel expert who helps clients book trips with their rewards points. But, “you really have to be careful. It may sound better than it actually is.”

Here are some key questions to ask yourself before signing up for a premium rewards card.

1. Can you afford the card’s sign-up bonus?

Cards that charge an annual fee often lure new cardholders with juicy sign-up bonuses that can add up to hundreds of dollars in free travel or other perks. Some cards also waive their annual fees in the first year, making them even more lucrative. But they also frequently require a ton of spending in your first few months of card ownership.

The more expensive the card, the more you typically are asked to spend to earn a bonus. For example, you could be asked to spend anywhere from $3,000 to $5,000 within the first 90 days of opening your new card. If you can’t afford to spend that much at one time, you could wind up foregoing the bonus altogether – or racking up more debt.

2. Do the bonus categories match your spending habits?

A big sign-up bonus and lucrative side benefits can only get you so far. If your new card doesn’t match your spending habits, then you may have a tough time holding onto the card for more than a year.

Before you get too excited about a card’s promotions, think about your spending plans and habits. To help you zero in on a card that will give you the most bang for your buck, take a closer look at your credit card statement, suggests Geesey, and look for revealing patterns.

In addition, look at the rewards programs’ terms and conditions and see how tough a lender has made it to enjoy a specific benefit.

For example, many premium cards offer bonuses on travel, but their definition of travel may only include airfare booked directly with an airline or the issuer. Similarly, they may only let you use your travel credit on incidental airline fees, such as checked baggage. Other cards are more flexible with their definition of travel and will award bonuses on everything from public transportation to cruises, discount travel sites and taxis.

The Chase Sapphire Reserve offers a broad definition of what counts toward its $300 travel credit, Geesey notes. You can get reimbursed for everything from public transportation to highway tolls, parking and even UberEats.

“For the majority of people, they probably spend $300 a year in those categories even if they say they don’t travel,” Geesey said.

See related: Is a 100,000-point sign-up bonus worth it?

3. Will you use the ancillary benefits?

This is, by far, one of the most important questions to ask yourself when evaluating a premium credit card. High-end cards are often packed with lucrative benefits that look great on paper, but aren’t always very practical to use.

For example, some cards offer resort credits you can use to pay for massages or food; but the credits are hard to use because they are only available at select hotels, says Shoaf.

Similarly, you may find it tough to take advantage of an airport lounge if you’re always rushing to catch your connections or if your gate is far from the nearest lounge.

4. How often do you travel?

If you only travel occasionally or prefer more flexibility with your points, a general travel card that allows you to transfer points to other loyalty partners is likely your best bet.

“If you’re not a frequent flyer, you’re not locked down,” says Shoaf. “You can choose which airlines you want to transfer your points to.”

But if you spend a lot of time in the air, then you may be better off with a co-branded airline card. Many airline cards with annual fees offer lucrative perks, says Harzog, such as annual companion passes.

In addition, special perks, such as free checked baggage, can quickly add up – especially if you usually travel in groups.

Don’t feel like you need to spend money on a travel card if you rarely venture beyond your hometown more than a few times a year. These days, there are premium cards for a wide variety of spending categories, including restaurants and entertainment, groceries and gas.

5. What do you care about more: comfort or value?

Deciding whether a card is worth its annual fee also comes down to what you value and what you’re willing to spend money on. If you value luxury and comfort, for example, then you may be happier with a card such as The Platinum Card® from American Express, which offers plusher service and experiences for a $550 annual fee.

But if you’re eager to build a big collection of rewards, you may find the Platinum card disappointing.

“It has a lot of great perks,” says Geesey. “But for actually spending money, it’s really not that great of a card.”

For example, it only offers bonus points on flights and prepaid hotels booked with AmEx Travel or directly with the airlines. Other premium cards, by contrast, also award bonuses on everyday spending categories, such as dining or mobile payments.

See related: Variable award pricing now makes award travel easier

6. Can you get similar benefits from a less expensive credit card?

As competition for new cardholders continues to heat up, lenders are increasingly adding lucrative perks to cards with lower fees. For example, travel credits, such as application fee credits for TSA Precheck or Global Entry, used to typically only be found on premium cards with three-figure fees.

But now even lower-tier cards, such as the Capital One® Venture® Rewards Credit Card and the Bank of America® Premium Rewards® credit card, are offering these kinds of perks. Bank of America’s $95-annual-fee premium card even offers a $100 airline incidental fee credit.

Bottom line

Before you apply for an especially pricey card, check to see if the perks you’re most excited about are available on a more affordable version. And if you decide to embrace a more expensive card, be sure you’re getting your money’s worth.

You don’t want to break even,” says Harzog. “You want to come out ahead.”

The Bank of America content was last updated on March 3, 2020. 

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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