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Annual fee credit cards have surprisingly added value during pandemic

A new CreditCards.com poll shows a third of consumers pay an annual fee for a credit card, despite these cards' tendency to reward travel

Summary

Some 81% of annual fee cardholders believe they’re receiving either the same (58%) or more (23%) value from their annual fee cards during the pandemic, according to a new CreditCards.com poll.

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About one in three U.S. adults (34%) pays an annual fee for a credit card, according to a new CreditCards.com report.

The vast majority are finding the benefits valuable even though the COVID-19 pandemic has crippled travel, which has traditionally been the biggest selling point for these annual fee cards.

Some 81% of annual fee cardholders believe they’re receiving either the same (58%) or more (23%) value from their annual fee cards during the pandemic. Their favorite benefit is a dead heat between cash back and travel rewards and perks (both 23%).

Traditionally, annual fee cards have catered to frequent travelers, which is why it’s surprising that annual fee card holders are perceiving so much value despite a massive slowdown in the travel industry that began in March.

See related: Trip canceled? Your credit card may reimburse you

How premium cards have added value

It’s one thing to pay $550 for a credit card if it gets you into airport lounges and upgrades you to a first-class seat with Champagne, caviar and a lie-flat bed. But that’s a big splurge if you’re not venturing outside your ZIP code.

Many of these credit card issuers have made really quick, smart adjustments to their value propositions, and their customers are responding favorably.

For example, The Platinum Card® from American Express is allowing cardholders to earn up to $320 in statement credits between May and December 2020 when they pay for select U.S. streaming and wireless phone plans (up to $20 per month on each) with their card. American Express also expanded the Platinum card’s $200 annual Uber credit to include Uber Eats.

One of its chief rivals, the Chase Sapphire Reserve card, is temporarily offering 5 points per dollar on grocery spending through June 30, 2020 and allowing cardholders to redeem points for 1.5 cents apiece on grocery, home improvement and dining purchases through September 30, 2020 (a higher threshold previously reserved just for travel).

That’s an effective 7.5% return on grocery spending, 4.5% on travel and dining and 1.5% on everything else. Chase also expanded the Sapphire Reserve’s $300 annual travel credit to include groceries and gas and lowered its annual fee from $550 to $450 through the end of the year.

Co-branded cards carrying big travel names like Delta, United, Marriott and Hilton have also upped their grocery rewards and offered other limited-time perks to encourage spending and ward off cancellations. It makes sense – they want to meet people where they are currently spending, so they earn points and miles now and build loyalty that will pay off on future trips.

See related: Preparing your post-pandemic rewards travel strategy

Annual fee cards now resemble cash back cards

As smart as these changes are, they’re ironic because annual fee travel cards are starting to act more like cash back cards. With a few exceptions (like the Blue Cash Preferred® Card from American Express), most annual fee cards are best suited for frequent travelers.

Often, when you redeem points or miles from an annual fee card, you’ll get a lower valuation on cash back than travel. Many of the best cash back cards come with no annual fee, whereas the best travel cards tend to carry hefty annual fees. While you could mix and match, it generally makes more sense to build your rewards strategy around cash back or travel, not both.

See related: When is a credit card annual fee worth it?

Not swayed by new benefits? Ask for a fee waiver or a new card

Those who aren’t feeling as warm and fuzzy about the new benefits on their annual fee cards should ask the card issuer to waive or lower the annual fee, although only about a third (35%) of annual fee cardholders know that, according to our new survey.

Seven in 10 cardholders who asked for annual fee relief got it, we found back in 2018. It’s definitely worth a shot; I’ve heard that many card companies are being especially generous with fee waivers these days. They realize you’re spending differently, and they don’t want to lose your business. You can also ask them to switch you to a different card that fits your lifestyle better.

Parents of children under age 18 are especially likely to be enjoying the recent changes to their annual fee cards (36% are finding more value, compared with just 18% of non-parents). Northeasterners reporting better value (32%) significantly outpace other geographic regions (the South and West both came in at 22%, with the Midwest at 16%). And men are seven percentage points more likely than women to perceive higher value of late.

Have a question about credit cards? Email me at ted.rossman@creditcards.com and I’d be happy to help.

Methodology

CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,551 U.S. adults, including 864 who pay credit card annual fees. The survey was conducted online between June 3-5, 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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Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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