Are all these Credit Card annual fees justified?
Often in our daily lives, we’re asked about credit cards. Which is the best? Which should I get? Who has the best miles, etc etc… and the answer’s the same. We’ll normally respond with a card that you’ve heard of before, but no matter the card that we recommend, the next question is always the same. “How much is the annual fee? If it’s more than zero I don’t want it.”
I find that many times paying an annual fee on the card is more than justified, and I think truly it depends on what you’re looking to get out of it. Currently between the two of us we have 26 credit cards, and of those 26 we pay annual fees on about 20. Are they worth it? Absolutely, otherwise we wouldn’t be doing it! Let’s talk about how to gauge if paying a fee is the right move for you.
How much is the MONTHLY fee?
I look at annual fees on a monthly basis for one simple reason… the number hurts less! In all seriousness, we pay monthly fees for tons of things in life; gym memberships, streaming services, even memberships to food delivery services. Do you use all of them to their maximum benefit? Probably not, but seldom do you balk at paying $30-50 a month for those things.
I know you don’t go to the gym every day, but still paying that $50 a month equates to over $600 a year. Chances are you’re not signing up for a credit card that costs $600 a year.
Most cards carry between an $80-100 fee annually, which breaks down to between $7-8 a month. Now, I don’t know what you spend on lunch today, but I’m guessing it’ more than $7. And the credit card is going to give you a lot more satisfaction long term than that Curry Chicken Wrap.
What are the STATED benefits
All cards come with benefits that vie for your wallet share. Some, like the Alaska Airlines card, come with a Companion ticket every year. Some, like the SPG American Express (read more) and my favorite, the SPG Business American Express card (read more) card carry a free annual night certificate. Those certificates outweigh the annual cost of the card.
If I pay $80 a year for a credit card but I can get a free flight for a companion that’s worth over $500, then that’s a win!
What are the HIDDEN benefits
There are many benefits that don’t make the first page of the application but are often more powerful than the free night or bonus points.
Travel insurance is included with almost every credit card that carries an annual fee. Lose your luggage? They’ll cover your new clothes purchase. Flight delayed and you need a hotel? Go ahead and book it, they’ll cover the cost for you. Rental car insurance? Decline the coverage because your card has you covered. These benefits, even if you only travel once or twice a year, can save you hundreds of dollars. Well worth the fee if I do say so myself.
Free lounge access
Airports are more crowded than ever, and it’s not going to get better in the short term. One way to escape the crowds is with lounge access. In Seattle we have access to the Club at SEA because of our Priority Pass. Alaska lounges also in PDX and LAX. We also get entry to the American Express lounge because of our Platinum Card (read more) and Ben’s Business Platinum Card (read more).
We also get access to all the American Airlines lounges because of our Citibank card and the Delta lounges as well because of the Amex Platinum.
Do you find yourself buying coffee or snacks at the airport? This is a way to save cash on that as all the food/drink in those lounges is free!
Multiple Points for Spend
Using a debit card (or a credit card that only earns 1% cash back) is like throwing currency down the drain. Many of the travel cards offer 2, 3, or even 5x bonuses depending on the category. We have a card that offers us 3x on all travel and even one that gives us 5x the points at office supply stores and for our utilities. Now, the new Amex Gold offers 4x at Supermarkets and restaurants. Theres no reason that we will cancel that card, ever! Earning 5 times the points for normal purchases is well with the $7/month we pay for that card.
Missing the forest for the trees
In trying to be cheap and not spend on an annual fee, you’re losing out on so many possible benefits. We just spoke to a friend who experienced a delay in Miami. He was forced to spend the night in a hotel because of a horrible thunderstorm that cancelled flights out of the airport. The airline reaccomodated him the next morning along with all those other passengers, but because it was “An Act of God” the airline was not responsible for any lodging.
He ended up paying $250 out of his pocket for an airport hotel and at the cost. If he would have booked with a card (such as the Chase Sapphire) he would have been covered, since the card comes with the insurance needed to pay for that expense.
Sure, there’s no guarantee that you’ll be the recipient of a delay of cancellation, but isn’t that the entire point of insurance? You get life insurance in case you die and have health insurance in case you get sick… but then you get angry at the airline when things go awry? You should have got that travel insurance (via your credit card, of course).
Don’t be afraid of annual fees
Last year we paid $1700 in annual fees, but got 5 free flight vouchers, 4 free hotel vouchers, and entered airport lounges over 80 times in the course of the year. We filed two purchase protection claims, one extended warranty claim, two delayed bag claims, and one travel interruption claim. We also got our Global Entry fee refunded, $600 in free travel credits, hundreds of thousands of bonus points, and the list goes on.
Now, isn’t that worth paying a few measly annual fees?
So next time you’re thinking about a credit card, don’t just write it off because the annual fee seems to be high. Think long term and make sure you understand the benefits fully. Chances are you’re going to save in the long run.