Are Annual Fee Credit Cards Worth It? – Why I Pay $800 A Year
Annual fee credit cards offer some great rewards that you can’t find in regular credit cards. But this begs the question is paying the annual fee actually worth it? I wrote an article a whole back outlining how credit card rewards work but I left out one key element, the math.
Is it worth having an annual fee credit card vs. one with no annual fee?
This is going to depend on the card and how you use the card. Does it make sense for me to pay for an annual fee United Airlines card? No, because I never fly United. Does it make sense for me to pay a high annual fee, say almost $500, on a general travel credit card? Yes, it does and I’ll show you why later on.
My point is this isn’t a simple question with a straight answer. It is going to take some time (just 10 minutes) to do some quick math to see if you are going to get enough value out of a credit card to make it worth the annual fee.
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Are Annual Fee Credit Cards Worth It?
Yes and no. As I started to explain in the introduction to this article there is a lot more variables that go into this question. Is it true that annual fee credit cards offer more benefits than ones without? Yes, absolutely.
The problem lies in the fact that some of these benefits may not be applicable to you, ever. Because of that, it isn’t fair to say that it makes it worth the annual fee. You’ll see this later on in the article when we talk about a food credit I get on a certain card.
Below I go through three credit cards that I currently carry in my wallet that have annual fees. I’m not going to go through each and every perk of the cards because that would be boring. Rather, let you know which benefits I use and get value from that help me justify paying the annual fee. These annual fees are $450, $250, and $95, totaling $795.
That’s a ton of money and I better be sure that I’m getting at least $800 worth of value from these cards. I believe I am and I’ll show you exactly how in the sections below. To help with the breakdown we’ll start with the annual fee, then talk about points earned from the card, finally ending with the value of other perks on the card.
The Chase Sapphire Reserve
Let’s start out with the card with the highest annual fee so I can drive home my point. The Chase Sapphire Reserve, one of my favorite credit cards of all time, has an annual fee of $450. Yes, you read that right I pay almost $500 a year just to have this credit card.
Some say I’m crazy but the math doesn’t lie.
The Chase Sapphire Reserve comes with a healthy signup bonus of 50,000 points when you spend $4,000 in the first 3 months. One of the perks of the card is that if you use the points for travel they are worth 50% more or $.015 per point. This comes out to a total value of $750.
On top of that, I have earned points from actually using the card. These total up to $525 worth of value. This brings my total for points alone to $1,275.
This card has some other great perks that I definitely take advantage of. The one it is most famous for is the travel credit. This is a $300 credit per year towards spending on travel. Chase uses the term travel rather loosely and anything from an Uber, flight, hotel, etc. are covered. How this works is you spend the money and they credit it back to your account so you don’t have to touch anything.
The next perk is Priority Pass Lounge access. These are lounges that are in many airports around the world and a regular membership starts out at $300! I visit a Priority Pass Lounge 2-4 times a year so I value that at $100.
The last perk I want to mention is TSA precheck and Global Entry. The Chase Sapphire Reserve gives you a $100 credit to renew these services which you must do once every 4 years. Because I only need this once every 4 years I’ll value it at $25.
Total Value Of The Card
All in all the Chase Sapphire Reserve packs a ton of value in the first year alone. Will this value go down in the second year because you no longer get a signup bonus? Yes but it’s still net positive for me. Here’s the math:
$1,250 worth of value from this card in the first year? This is why I have the Chase Sapphire Reserve in my wallet. If you want to learn more about this card click the image above or the button underneath it to go directly to Chase’s website.
The American Express Gold Card
The next card I want to walk you through is one that I only recently added to my wallet this year and that is the American Express Gold Card. To be honest, I have always been a Chase fan but the AMEX Gold has started to sway me the other way. This card does have an annual fee of $250 but as you’ll see it’s well worth it.
Just like with the Reserve we are going to start out by talking about the signup bonus. Currently the American Express Gold Card has a signup bonus of 40,000 points when you spend $4,000 in the first 3 months. When I signed up for the card it was 50,000 but either way, you get a ton of value.
American Express Membership Reward Points are valued at $.02/point so that comes out to $1,000 worth of value immediately.
Now, I’ve only had this card for 6 months but I’ve already started to earn some points. In fact, I’ve earned 9,000 that has a value of $180.
The last way I have earned points is from referrals. Referrals happen when you click on a link in one of my articles and signup for a card or buy a product. For example, this article has referral links in it. Legally I have to tell you every time there is a referral link and what’s the point of hiding it anyways. These are all products that I use and enjoy so, of course, I’m going to recommend them to you.
From referrals, I have earned 20,000 points which have a value of $400.
Remember how at the beginning of this article I told you there were some perks on cards that wouldn’t be fair to say you are getting the value out of? Well, the Amex Gold has those perks.
The first major one is there dining credit. This is a $10 credit per month that you get back when you spend at SPECIFIC dining locations. They don’t use the term dining as loosely as Chase does with their travel credit. I’ll get to the point, I value this at $0. Why $0? Well, all of the dining options are places that I don’t have around me or just don’t make sense. Here are some of the options: Ruth’s Chris Steak House, Shark Shack, The Cheesecake Factory, Seamless. I don’t have any of these dining options within a 200-mile radius.
Next on the list of perks, I don’t really benefit from is the $100 Airline Credit. Again, the restraints are pretty tight and you can only choose one airline to use this credit with. The worst part is that the credit can’t go towards the purchase of the flight. Only things like a checked bad or an in-flight meal are covered. Because of this I only value it at $25.
The last perk I want to mention is the rental insurance. This is a perk I do use and will continue to use. I love being able to waive off rental companies overpriced insurance just because I have this card. I value this at $100.
Total Value Of The Card
Similarily to the Chase Sapphire Reserve, the American Express Gold Card packs a ton of value in the first year alone. Do most of this come from the signup bonus? Obviously, yes. But even without it, you are still net positive $455.
If you want to learn more about this card click the image above or the button underneath it to go directly to American Express’s Website.
The Chase Business Ink Preferred Card
The last card in my wallet with an annual fee is the Chase Business Ink Preferred card. I have had this card for almost a year and it’s a solid card. In terms of business cards offered by Chase, it is the top tier card so it does have an annual fee of $95 per year. When I first saw this I was slightly confused about how the top tier business card could be so much cheaper than the personal card but I’m not complaining.
Currently, Chase is offering a signup bonus on this card of 80,000 points when you spend $5,000 in the first 3 months. 80,000 points is a huge bonus but so is spending $5,000. It should go without saying but if you don’t need to spend the money then don’t do it just to get points. I value these points at $.013/point so that comes out to a total value of $1,040 or over 10x the annual fee!
I’ve also earned points by spending but I don’t really use this card much since my business expenses are low (currently). The total for these points comes out to $195.
The last way I’ve earned points is through referrals and that totals up to $260.
This card does have other perks like no foreign transaction fees and double or triple points on certain categories but that’s it. Honestly, I don’t get much value out of these and that is why I don’t credit them any value in this analysis. As I’ll explain in a minute this is why I question keeping this card in my wallet.
Total Value Of The Card
It is obvious that in the first year of having this card you will receive a ton of value from it, $1,400 to be exact. But this card is on the line of whether it is worth it or not to pay the annual fee. Is it true that I’ve covered the annual fee for the first 10 years? Yes, but could I be putting that $95 elsewhere and opening a different card that will probably bring me more value? Probably so.
For now, I’m going to stick with the Chase Business Ink Preferred card since I plan on running Facebook ads later this year to promote our course coming out in 2020. This card offers 3x points on those spends so I think it will be worth it. At the end of the year, I’ll reevaluate and see if it still makes sense.
If you want to learn more about this card click the image above or the button underneath it to go directly to Chase’s Website.
The Bottom Line
I believe that annual fee credit cards are worth it and I probably always will be. Are there some out there that are outrageously overpriced? Yes, but if you take 10 minutes to write out the cost and benefits of any annual fee credit cards then you can quickly understand if they make sense for you.
On the other side of things could you get a ton of value from cards that have no annual fee? Yes, of course. If you have a simple cashback card then you are on the right track and there is no need for extra complications if you are already happy.
Figure out a plan for you and stick to it.
Lastly, if you want to learn more about the cards above and why I have them in my wallet be sure to click on the image of the card or the button below it. To see a full list of my favorite credit cards then check out the Young, Dumb, and NOT Broke?! recommended page.
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