While I generally favor credit cards with no annual fee, occasionally cards with fees can provide benefits that more than compensate for the annual fee. Whether or not such a card is right for you will depend on your personal spending habits. Your circumstances will also determine if that card continues to be worth it to you. When’s the last time you checked if the annual fee for your credit card is worth it?
One of the reasons I like cards with no fees, is that you don’t have to worry about this. However, if you do pay an annual fee, you should regularly assess whether that fee continues to be worth it. This is especially important if you signed up for a new credit card for a specific sign up bonus. These cards are tempting and often waive the fee for the first year hoping that you’ll forget about it when the renewal comes. We have one of these.
Ideally, you should evaluate fees a month or two before the annual fee is charged, so you can make changes if needed. It only takes a few minutes and setting a calendar reminder will ensure you don’t forget.
How we assess if the annual fee is worth it
We currently have two credit cards which carry an annual fee. As a result of this year’s analysis, we will be canceling one card and keeping the other.
You can quickly assess if the annual fee on your credit card is worth it by comparing the benefits received to the fee charged. In order to do this, you will need to quantify the benefits actually received and that you would have received using your next best option. If you only compare the benefits received to the fee itself, you may come to an incorrect conclusion. The key is determining how much higher benefits are on the current card than what you could get for free.
Credit Card #1 – American Express Blue Cash Preferred – $95
The Blue Cash Preferred card offers cash back of 6% on groceries (up to $6,000), 6% on streaming subscriptions, 3% on gas and transportation and 1% on everything else.
The card also offers 100+ cash back deals each month for various merchants. Most of these offers do not require going through the credit card website’s link. This is great, since you can then stack on cash back from Rakuten (Ebates) or similar sites for additional savings. Some of the deals are really good. Most recently, we earned $10 cash back on $50 spent at Amazon and $20 off $100 at Wayfair.
We’ve had this card for a few years now and the benefits have surpassed the annual fee every year. Even with our lower spending this year and projected for next year, the card is still expected to save us money, so we plan to keep it.
What we got with the annual fee
In our case, the quantification of benefits received is easy since it’s in the form of cash back and we only use this card for groceries, streaming and gas. Over the past 12 months, we’ve earned total cash back in these categories of $410. Here is the breakout by category:
| Grocery Stores |
Streaming Subscriptions |
Gas & Transit |
Total | |
| 6% | 6% | 3% | ||
| Spent | $6,000 | $495 | $677 | $7,172 |
| Cash Back | $360 | $30 | $20 | $410 |
We actually went just over the $6,000 limit on groceries and only received 1% on that spending, but I’m excluding that herein to simplify the analysis. Our grocery stores are allowed to sell wine, beer and spirits and have great sales. Because of this, we purchase most of our alcohol at the grocery store and have no problem reaching this limit. Gift cards purchased at the grocery store also earn the 6% cash back.
What we could have gotten without the annual fee
In order to determine our next best option, we consider our other credit card benefits as well as the no-fee version of this card.
American Express also has a no fee version of this card which offers 3% cash back on groceries (up to $6,000), 2% on gas and select department stores and 1% on everything else. We could switch to this card if we decided the annual fee on our current card wasn’t worth it. We already have a card that returns 2% cash back on everything which serves as our primary card. Additionally, we have another credit card that rotates 5% cash back quarterly, with grocery stores usually representing a category for one quarter (though not always).
If we were to use these alternatives, approximately $1,500 (or 3 months) of groceries would get 5% cash back, and $4,500 would go on the no-fee Amex card for 3% cash back. All other purchases would go on our 2% cash back card. Here is the breakout by category for the same level of spending under the no-fee approach:
| Grocery Stores |
Streaming Subscriptions |
Gas & Transit |
Total | |
| 3% / 5% | 2% | 2% | ||
| Spent | $6,000 | $495 | $677 | $7,172 |
| Cash Back | $210 | $10 | $14 | $234 |
Compare results and consider future spending
Based on the lookback analysis above, our current card saved us about $82 more than the alternative options this year ($410 – $95 fee = $315 net cash back).
One thing I did not include in the analysis are the Amex Offers mentioned above. This is because I’m not sure if those are offered with the no-fee card or not. Additional cash back received from Amex offers was $34, $59, and $180 for the last three years which would increase the differential if only a benefit of our current card.
The final step of the analysis is to compare these results to future spending plans to determine if the benefits will continue to exceed the annual fees. While we don’t expect many changes to our spending habits, the one expense we’ve recently reduced is streaming subscriptions. As such, I ran the same analysis using our streaming costs forecasted for next year, to make sure this didn’t change the results.
The look forward analysis shows that we would still be $71 better off, so we’ll keep this card for one more year. However, since the savings isn’t huge, we’ll stay open to other offers in the future before next year’s renewal.
Credit Card #2 – American Airlines Travel Credit Card – $99
We signed up for this card on the way to our honeymoon. It was our first (and only) foray into travel credit card hacking. The card had a sign on bonus of 50,000 miles if you spent $3,000 over 3 months, enough to buy two free roundtrip tickets anywhere in the US. Since we had just moved back to the USA and bought a new house, we knew this would be easy to spend. Additionally, the annual fee was waived for the first year.
Besides the initial bonus miles, the card earned miles for every purchase, with extra mileage for restaurants and travel related purchases. It also provided priority status with the airline and free checked baggage for flights (with limitations).
So, should we keep this one?
No. We should have cancelled this card a while ago and I don’t need a detailed financial analysis to tell me that, as we’ve received $0 benefits over the past two years.
While we originally picked up the card for the sign-on bonus, we’ve rarely used it since. The benefits on our other cards are better and I prefer cash back.
We kept the card thinking that the free checked bags might be worth it, especially when baby gear was added to the mix. However, we just didn’t travel as much. Most of our travel was short overnights as a couple (carry on only) or road trips. Additionally, we realized the limitations of the benefit on a family trip to Aruba where we had to pay baggage fees anyways since the Caribbean was excluded. Hawaii, the big trip we had planned this year before the pandemic hit, is also excluded from the free checked bags benefit.
I intended to cancel the card last year, but completely forgot until after the fee had been charged. This year, we’re going to beat the fee and ditch this card.
Do you really need a card with an annual fee?
No, and I’d generally advise against it.
There are some great credit cards that don’t carry an annual fee. And some come pretty darn close in benefits, and you won’t have to worry every year if the annual fee on your credit card is worth it.
That said, I don’t agree with the people who make blanket statements that you should never apply for a credit card with a fee. In some cases, the benefits may far outweigh the annual credit card fee and be worth it. You just have to be willing to perform your due diligence before you apply, and periodically thereafter.
Credit Card Hacking
If you have the patience (and credit score) for it, you can make money by churning credit cards for the sign-up bonuses, whether in the form of cash or mileage for free flights. While free cards sometimes have these bonuses, you’ll find the best bonuses on cards with an annual fee (though most will waive the fee for the first year).
If you wish to engage in this practice, make sure that the fee is worth the benefits or you cancel before the fee renews by setting a calendar reminder as soon as you apply for the card.
Also, make sure your credit score is strong enough to withstand the multiple new cards and cancellations. Opening and closing credit cards can hurt your credit. As can the multiple credit inquiries needed to get approved for those cards.
There you have it. We’ve evaluated and decided what to do with our credit cards that have an annual fee. What about you? Are the annual fees on your credit cards worth it? Take a look and let us know!
New here and want to learn more about why we started this journey? Check out: “We’re on a Journey to Financial Independence” or “Why I really quit my High Paying Job.“
*Note: This post DOES NOT include affiliate links. Credit card links were provided for informational purposes only. If you are interested in the Amex card, I’ll be happy to provide you with a referral link for a special cash back bonus and waiver of your first year’s fee. This link could provide additional rewards to me as well, at no cost to you. Email or message me on Instagram to learn more.
