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Why You Should Be Paying for Your Credit Cards


For a lot of people, paying an annual fee to use a credit card is out of the question. For some, the very idea is an outrage. But often, this attitude is more emotional than rational. In fact, many credit card users have more to gain by paying an annual fee — and in some cases, even a very high annual fee. Here’s why.

Why annual fees can make sense for cash-back cards

Would you pay $100 to save $200? Of course you would, but this logic isn’t clear to devotees of no-fee cards. To see how you can come out ahead paying a fee, compare cash-back cards that come in versions both with and without an annual fee.

The Blue Cash Preferred® Card from American Express has a $95 annual fee but pays 6% cash back on up to $6,000 per year at U.S. supermarkets and on select U.S. streaming services, 3% cash back at U.S. gas stations and on transit purchases (such as taxis, rideshare services, parking, tolls and trains), and 1% cash back on all other purchases. Terms apply.

With a little math, the choice is clear. If you spent just $265 each month on groceries using the Blue Cash Preferred® Card from American Express, the additional 3% cash back (for a total of 6%, as compared to the 3% earned on the no-fee card) would equal the $95 annual fee. Spend more than $265 and you’re coming out ahead while also getting 6% back on streaming services like Netflix and Spotify, and 3% back on transit purchases and gas. Terms apply.

These two AmEx cash-back cards aren’t outliers. You can reach similar conclusions if you compare cards like the $0-fee Capital One SavorOne Cash Rewards Credit Card, which pays 3% cash back on dining and entertainment, with the Capital One® Savor® Cash Rewards Credit Card, which pays 4% cash back on dining and entertainment plus a welcome bonus: Earn a one-time $300 cash bonus after you spend $3,000 on purchases within the first 3 months from account opening. The annual fee is $95.

Why high-fee premium travel rewards cards can make sense

Credit cards that earn travel rewards can often get you even more value than you would get from a cash-back card. And while there are some travel rewards cards with no annual fee, they are typically poor substitutes for the premium versions that carry an annual fee.

For example, take the Delta SkyMiles® Blue American Express Card, which has a $0 annual fee, and compare it to the Delta SkyMiles® Gold American Express Card, which has an annual fee of $0 intro for the first year, then $99. Both cards offer 2x miles at restaurants and on Delta purchases, and 1 mile per dollar spent elsewhere. But the Delta SkyMiles® Gold American Express Card also offers 2x miles at U.S. supermarkets, and a free checked bag on Delta flights. Terms apply.

The Delta SkyMiles® Gold American Express Card also offers new applicants a nice welcome bonus: Earn 35,000 bonus miles after you spend $1,000 in purchases on your new Card in your first 3 months. Terms Apply. The Delta SkyMiles® Blue American Express Card has a smaller welcome bonus: Earn 10,000 bonus miles after you spend $500 in purchases on your new Card in your first 3 months. Terms Apply.

You can see this pattern over and over again when comparing travel rewards cards that charge an annual fee against their no-annual-fee counterparts.

Why huge annual fees on ultra-premium cards can make sense

Several ultra-premium travel rewards cards have annual fees in the $450 to $600 range. Though these pricey cards aren’t for everyone, many frequent travelers can easily justify those annual fees. For example, the Chase Sapphire Reserve® has a $550 annual fee. In return, cardholders get a $300 annual travel credit and a $100 credit toward Global Entry or TSA Precheck every four years. If you count the Global Entry or TSA Precheck credit as being worth an average of $25 per year and add in $120 of Peloton credit and $60 for DoorDash, you’re quickly over $500 in just statement credits.

Plus, you get 3x points on dining and travel purchases and 50% more redemption value when you use your points to book travel in the Chase Ultimate Rewards® portal.

The Chase Sapphire Preferred® Card charges a much lower annual fee: $95. But because you’re missing out on the travel credit and Global Entry or TSA Precheck credit, your real savings aren’t what they seem. With the Chase Sapphire Preferred® Card, you get only 2x points on dining and travel and 25% more redemption value in the Chase travel portal.

Plus, Chase Sapphire Preferred® Card customers miss out on benefits like a Priority Pass Select membership (which gives you and up to two guests access to over 1,300 lounges around the world and credits of $28 per person, per visit at many airport restaurants) and 10x points on Lyft purchases (compared to the less expensive card’s 5x points on Lyft).

With these benefits, Chase Sapphire Reserve® cardholders can get a lot more value than holders of the lower-annual-fee card — more than enough to offset the price difference. Again, you see the same value when comparing ultra-premium cards like The Platinum Card® from American Express and other lower-fee AmEx travel cards.

The bottom line

You can be an extremely frugal person yet still see the value in paying a high annual fee to use a credit card. So long as the value of the benefits you receive exceeds the cost of the annual fee, you’ll always come out ahead.

How to Maximize Your Rewards

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2021, including those best for:



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