Why Some Credit Card Annual Fees Are Totally Worth Paying

I can’t tell you how many times I have had a conversation with someone that goes something like this…
  • Intrigued Potential Traveler (IPT): Jim, what cards do you use on a day to day basis?
  • Me: The Chase Sapphire Preferred, the Chase Freedom, the Chase Ink Classic, and the AMEX Starwood Preferred Guest cards.
  • Intrigued Potential Traveler: Wow, four cards?  You don’t pay annual fees on those do you?
  • Me: Only the Chase Sapphire Preferred.  The Starwood card has an annual fee, but it’s waived the first year.  Once that year is up, I won’t keep it.
  • IPT: I refuse to pay any annual fees.  Why should I pay someone to use their card? 
Are you in agreement with IPT or not?  If you are, I am going to try to show you why you may want to reconsider paying annual fees on certain cards.
 
blue cash preferred

One of my favorite cash back cards…well worth $75 a year if you spend a lot on groceries

Cash Back Example Let’s start with a very simple example involving one of my favorite cards for those who are chasing cash back instead of miles/points (though I fail to see the fun in that!).  Ever heard of the American Express Blue Cash card?  It comes in two flavors: with an annual fee or without.  Most people say “of course I am taking the no annual fee version, why should I have to pay to use a credit card?”  Here is why. The no annual fee version (known as the Blue Cash Everyday) gives you back 3% on groceries, 2% on gas, and 1% on everything else.  That’s pretty darned good for groceries, which for families is a considerable expense.The annual fee version (known as the Blue Cash Preferred and having an annual fee of $75) earns a whopping 6% back on groceries, 3% on gas, and 1% on everything else.  Note: with both cards, the grocery benefit is only on the first $6000; after that, you’re getting back 1%. Now, $6000 is an even $500 a month, which my family easily beats.  So, with the Everyday version of the card, I would earn back 3% of $6,000, or $180 per year, just on the $6,000 grocery spend.  By comparison, the Preferred version would earn 6% of $6,000, or $360 per year.  Even with the annual fee, I will come out ahead with the Preferred version.  $360 – $180 – $75 = $105 more with the Preferred, and that doesn’t include the extra cash back on gas.
 
​Here are some more examples of when I would have no problem paying an annual fee.
 
Card Anniversary Benefits

The IHG card from Chase. Not great for spending, but a free IHG hotel night for $49 each year? I’ll take it.

What if I told you that Marci and I have a credit card with an annual fee of $49 yet we never use it to buy a thing?  Yep, we pay the $49 each year and it sits in a drawer. Are we crazy?  Not at all.  It’s the IHG (Intercontinental Hotel Group) card from Chase.  Why pay this annual fee?  Because each year, after I pay my annual fee, I earn a free night at darned near any IHG hotel (Holiday Inn, Holiday Inn Express, Crowne Plaza, Intercontinental, and others).  I can get a whole lot more than $49 in value from that.  The Chase Hyatt card has a $75 annual fee and also includes a free night each year (categories 1-4, but category 4 Hyatts are really nice).
 

This card allows me to transfer my Ultimate Rewards to United, Southwest, Hyatt, and many others for much more powerful rewards!

​Points Transfer Capability Here is another example.  Chase offers the Sapphire card in both regular (no annual fee) and Preferred ($95 annual fee) versions.  I have the Preferred and I have no intentions of ever downgrading this card.  On the surface, there is not much difference between the two versions.  Both earn 2x Chase Ultimate Reward points on dining, but the Preferred also gets 2x points on travel (hotel, airfare, car rental, parking, cruises, and more).  Now, that is still not ​worth $95 to me.  But here is where the Sapphire Preferred really shines.  With the regular version of the card, I can easily use my Chase points to book travel through Chase’s travel site, and if I do, I get a flat 1.25 cents per point from them, which is okay.  With the Preferred, however, I can actually transfer my Chase points to United, Hyatt, Southwest, Marriott, IHG, British Airways, and other loyalty programs.  When I do that, especially with United, Hyatt, BA, and Southwest, those points become much more valuable.  When I booked my trip to Greece in Business Class, I transferred my points to United and got a staggering 8 cents per point.  If you are saying “Seriously Jim, you’re getting excited about an extra 6.75 cents per point, consider this: I used 200,000 Chase points and got $16,000 out of them for that trip.  With the regular version of the card, those points would have gotten me $2,500 in value.  See the difference?  ​
 

Premium Service Example

The crazy expensive, but incredibly valuable, Citi Prestige

Want an extreme example?  This one is great, especially if you live in an American Airlines hub, such as Dallas or Miami.  Citi has a card called the Prestige, and it carries (you ready for this?) a $450 annual fee.  Now, most people would say flat out “no card is worth that much.”  My response?  Don’t be so sure.  Here is what this card gets you:

 

  • ​​An annual credit of up to $250 for airline expenses.  It does not matter what airline.  It could be for baggage fees, food/drink, and yes, even flight tickets.  Spend $250 or more on tickets, and you’ll get $250 back.  If you already plan to fly somewhere each year, the cost of the ticket is basically included with the annual fee.  More succinctly, take a flight costing $250 or more each year, and you’ve effectively cut the annual fee to $200.
  • The ability to use Thankyou Points (Citi’s answer to AMEX Membership Reward Points and Chase’s Ultimate Reward Points) at a very solid ratio of 1.3 cents per mile.  BUT, if you use them on American Airlines, those points become worth 1.6 points per mile, which is absolutely terrific.  Why?  Because you do not have to transfer them to American and hope you can find an award seat.  You simply book whichever American flight you want and get 1.6 cents per point.  If there is a seat available, it’s yours.  Believe me, 1.6 cents per point with that much flexibility is very powerful.
  • Airport lounge access.  Not everybody cares about this, but it is extremely nice when you have it.  Even if you are not flying American, you can use their lounge.  If there is not an American lounge, it includes Priority Pass, which gets you into tons of other lounges.  Folks, lounge access is expensive, so this is a big perk.
  • Three rounds of golf per year at some really nice properties.  I won’t attempt to list them, but some go for $200 per round.  Insane value if you are a golfer.
  • Fourth night free on every hotel reservation.  If you book through Citi’s site, which is powered by Carlson Wagonlit Travel, any hotel booking includes a fourth night free.  Again, this is potentially very lucrative and can be used more than once per year.
 
Will you use all of these perks?  Maybe, maybe not.  Hopefully you can see, however, that you can squeeze a whole lot more than $450 in value from this card.  If you have a Citi branch near you, you can usually apply in the branch and get the fee down to $350. Those are just a few examples of where annual fees can be more than easily justified.  There are lots more out there.  My point in this article?  Take a closer look at the cards you are using and ask yourself “am I getting everything I can from this card?  If not, is there a more powerful card where I can ‘beat’ the annual fee?” So, what do you think?  Do you pay annual fees for your card(s)? If you enjoyed this post, please share it with your friends via Facebook, Twitter, or email.
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