When is it worth paying an annual credit card fee?

Rewards and rates …

These are the 2 things you are probably thinking about the most when it comes to getting a new credit card.

We know we want the greatest possible rewardsBut what about the annual rates?

How do we decide if distributing cash at the end of each year is worth the rewards we get?

An excellent way to see it: do the rewards compensate for the annual rate? If so, then it is obviously worth it … but this also means comparing virtually all the cards in the market.

Don’t worry: this guide (and our Compare Cards page) can do all the work for you.

When is an annual credit card fee worth it?

To decide whether or not to pay an annual fee, there is a simple formula that you can use to compare 2 different cards:

(Difference in the annual rate / Difference in the rate of profit) / 12 = Monthly expenditure required

It seems pretty simple, right? Putting the numbers in and out comes a monthly expense where both cards will give you the same net rewards.

But it’s not that simple.

If the cards you are looking at have flat profit rates, this works very well. But many cards have different categories with different profit rates, and you are likely to spend at different rates in certain categories. This means that your earning potential varies a lot.

An easy way to discover this?

Our card comparison page can help you. Simply enter your monthly expense in 8 categories and we will add the rewards for you. Scroll over the total rewards and you can see the net rewards you will get for each card.

For the purposes of this article, we will compare some cards of the same family to see if we can have an approximate number to take into account.

Comparison of annual rate with travel credit cards without annual fee

Let’s look at some examples of travel cards and see what we invented.

Comparison of annual travel credit card rate

First, we will see some hotel cards: the Y I will do well.

Let’s start with our basic expense of $ 2,000 per month. Every point of Hilton Honors is worth 0.48 cents every.

Monthly expense and expense category Hilton Honors Amex wins rate Hilton Honors Amex annual rewards Hilton Honors Ascend earns rate Annual Hilton Honors Ascend Rewards
Gas, restaurants and groceries – $ 700 5 points for $ 1 (2.4% return) $ 202 6 points for $ 1 (2.88% return) $ 242
Hilton – $ 100 7 points for $ 1 (3.36% return) $ 40 12 points for $ 1 (5.76% return) $ 69
General – $ 1,200 3 points for $ 1 (1.44% return) $ 208 3 points for $ 1 (1.44% return) $ 207
Total rewards 1,875% $ 450 2.16% $ 518
Annual quota $ 0 ($ 95)
Net rewards $ 450 $ 423.40

Even with this expense, the free card still goes ahead.

This illustrates an important advantage of hotels and airlines: many of these cards offer advantages with direct monetary value when used once a year, which can compensate for the annual rates themselves.

In addition, cards within these families generally have the same (or almost the same) profit rates.

In this case, the Offers a free night after spending $ 15,000 per year. Even if the free night is only worth $ 150, that gives you a network of $ 55 when you subtract the annual rate.

So, in this case, the breakeven point is actually $ 1,250, and it is not based on spending (assuming you actually use the annual free night).

American Airlines example

As another example, let’s look at the and the .

Both are almost identical in terms of earning AAdvantage miles: the only difference is Earn 1 extra mile for every $ 1 spent on gas. You will have to spend a lot on gas to make the annual $ 95 fee worth it, just based on spending.

But if you travel with American once a year, you will get these benefits with the :

  • First free checked baggage, a savings of $ 60 and
  • a $ 125 discount on American Airlines flights after spending $ 20,000 a year.

Use the first checked bag for free more than once a year, and that only pays the annual fee. Then, if you travel once a year and spend $ 20,000 on the card, the $ 125 discount is extra money that goes back to your pocket.

So, if you fly in American once a year and spend $ 1,667 per month, the Is the best option.

Otherwise, you may want to stay free.

Related: Face to face of the airline’s credit card – JetBlue Vs Southwest

Comparison of annual fee versus no annual fee for credit cards with cash reimbursement

Now we will make a cashback comparison between Y . Starting with our usual monthly expense of $ 2,000, this is how things could look:

Monthly expense and expense category Blue Cash Gain Rate Annual Blue Cash Rewards Preferred Blue Cash Rate Blue Cash Preferred Rewards
Groceries – $ 350 3% $ 126 6% $ 252
Service stations – $ 250 2% $ 60 3% $ 90
Others – $ 1,400 one% $ 168 one% $ 168
Total rewards 1.48% $ 354 2.13% $ 510
Annual quota $ 0 ($ 95)
Net rewards $ 354 $ 415

In this case, you are much better with .

Now, let’s reduce monthly spending a little to around $ 1,500:

Monthly expense and expense category Blue Cash Gain Rate Annual Blue Cash Rewards Preferred Blue Cash Rate Blue Cash Preferred Rewards
Groceries – $ 250 3% $ 90 6% $ 180
Service stations – $ 100 2% $ 24 3% $ 35
Others – $ 1,150 one% $ 138 one% $ 138
Total rewards 1.05% $ 252 1.48% $ 354
Annual quota $ 0 ($ 95)
Net rewards $ 252 $ 259

Now we are almost the same.

So, in this case, a monthly expense of $ 1,500 would be the approximate point of when the annual rate is worth it.

So when is it worth paying an annual fee?

As a general rule, our number is around $ 1,500 per year.

For travel cards, it all depends on whether you can also take advantage of the benefits provided or not. Since most cards belonging to the same airline and hotel chains offer similar rewards, you you need to use the advantages provided to make the annual rate worthwhile.

For others, spending around $ 1,500 is a good place to start.

Your thoughts

What do you think of our number?

Do you agree? Disagree?

Let us know in the comments below.

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Stacey Hawk

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