Wealth and Wants

Why credit card annual fees scare me

Many cash back cards reward you for money you're spending anyway


Many cash back cards give you free money without having to worry about a surprise annual fee added to your balance.

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I have a confession to make: I write and speak about credit cards for a living, yet I’ve never had a credit card with an annual fee.

I know that cards with annual fees can provide terrific value, such as the extremely popular Chase Sapphire Reserve. I know the card’s $450 annual fee is really just $150 after you subtract the $300 annual travel credit, and you can remove another $100 for Global Entry/TSA PreCheck every five years. And sure, a 50,000-point sign-up bonus (worth roughly $750 in travel) after spending $4,000 on purchases in the first three months sounds nice.

So does the Citi Prestige card’s fourth night free hotel promotion and the 5x earn rates on flights and hotels (flights must be booked directly with the airlines or with American Express Travel and hotel reservations must be prepaid through AmEx Travel) offered by The Platinum Card® from American Express. Likewise for the airport lounge access offered by all three of these cards. There’s no doubt these are incredible offers for many, many people.

But I’ve resisted signing up for these cards, which carry annual fees in the $450-$550 range, as well as their less expensive cousins in the $100 annual fee neighborhood. For years, I have chosen to fill my wallet with no-annual-fee cash back cards: the Chase Freedom which offers 5 percent back on rotating categories, the Blue Cash Everyday® Card from American Express which offers 3 percent back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1 percent thereafter), 2 percent back at U.S. gas stations and 2 percent back on select U.S. department store purchases. I also use the Capital One Quicksilver Cash Rewards Credit Card which offers 1.5 percent back on everything. I recently filled a hole in my portfolio with the Wells Fargo Propel American Express® card, which won me over with its $300 sign-up bonus and triple points on travel and dining (30,000 points = $300 cash redemption value after spending $3,000 in purchases in the first three months). Oh, and the fact that it doesn’t charge an annual fee, of course.

Why I’m reluctant to pay fees

I think I avoid cards with annual fees for three main reasons: for one, I’m really cheap (ahem, frugal). I love cash back cards because they give me free money – almost $1,400 over the past year – in return for money I would have spent anyway. I know it’s psychological and probably doesn’t make sense, but I hate the idea of being charged an annual fee up front and needing to dig out of that hole. That would feel like I’m spending money just to spend more money, rather than getting something for nothing. It’s the same reason I’ve never signed up for Amazon Prime, even though I buy a lot from Amazon.

See related: Why do some people have multiple high-end annual fee cards?

The second reason is that most annual fee cards are marketed as travel cards, and my family doesn’t travel a whole lot. My wife Chelsea and I have a three-year-old daughter, and we took two family plane trips over the past year, both to visit Chelsea’s parents in California. That’s a big part why our credit card strategy has always revolved around earning cash back on everyday spending.

The third reason, which kind of blends the first two, is what Patti Stanger (“The Millionaire Matchmaker”) would describe as “bigger, better deal syndrome.” A perfect example of this is why I haven’t upgraded my Blue Cash Everyday to the Blue Cash Preferred® Card from American Express, which gives 6 percent back on up to $6,000 of spending at U.S. supermarkets. That’s instead of 3 percent offered by the Blue Cash Everyday Card, but with a $95 annual fee.

I would come out $85 ahead after a year of spending with the Blue Cash Preferred, even after subtracting the annual fee. But the Chase Freedom introduced a wild card this year. Not only did it give 5 percent back on groceries in the second quarter of the year, but it also gave 5 percent back on several mobile payments services in Q1. I used Apple Pay at the grocery store, maxing out the category and scoring $75 from $1,500 in spending. Chase Pay is one of the Freedom’s Q4 bonus options; I recently downloaded it and will use it frequently on my upcoming grocery runs.

That means the incremental gain from the Blue Cash Preferred would be just 1 percentage point over my other cards in three of the four quarters. That would be about $21 annually, not $85. And the competition isn’t just from my existing cards, it’s also from potential new sign-ups.

See related: How much can you really make with a cash back card?

I try to be selective with my card portfolio. I have four credit cards right now, and don’t want to get too many, mostly for convenience and record-keeping reasons. It’s a myth that more cards means a lower credit score, but I’m a minimalist in many respects. And Chelsea already thinks we have too many credit cards!

For us, it was a big decision to add the Propel card last month, but it made a lot of sense since we’ll get a $300 sign-up bonus and will double our future cash back on travel and dining. We think it’s worth it, especially since fee free is the way we want to be.

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