Annual fees can make a credit card look more expensive, but a card with an annual fee isn’t automatically a bad deal. The important question is whether the benefits you actually use are worth more than the fee you’re paying.
Quick Answer: A credit card annual fee is worth paying when the rewards, credits, and benefits you actually use are worth more than the fee. For example, a $95 annual fee may make sense if you receive $150 in genuine annual value, leaving you $55 ahead.
What Is a Credit Card Annual Fee?
An annual fee is a charge some credit card issuers assess each year for keeping the account open. Some cards have no annual fee, while others may charge a fee in exchange for rewards, travel benefits, credits or other features.
When Is an Annual Fee Worth Paying?
An annual fee may make sense when the value of the rewards, credits or benefits you actually use exceeds the cost of the fee. The key is to calculate the value based on your own spending and habits—not the maximum value advertised by the card issuer.
Calculate the Value You’ll Actually Use
Start with the annual fee, then estimate the value of the rewards and benefits you realistically expect to use during the year. If the card costs $95 annually but you expect to receive $150 in value from benefits you would otherwise pay for, the fee may make sense. If you wouldn’t use those benefits, the advertised value doesn’t help you.
No Annual Fee vs. Annual Fee Cards
A no-annual-fee card can be a straightforward choice if you want to avoid a recurring cost. A card with an annual fee may offer rewards or benefits that offset the fee, but only if those benefits fit your spending and you actually use them.
What Else Should You Check?
Don’t look at the annual fee by itself. Check the card’s APR, introductory APR, balance transfer fee, foreign transaction fee, late-payment terms and other costs. A card with a low annual fee can still be expensive if you carry a balance or use features with additional charges.
Example: Is a $95 Annual Fee Worth It?
Suppose a card charges a $95 annual fee. You estimate that you’ll receive $120 in rewards and benefits that you would actually use. That would leave you with about $25 more in value than the annual fee. If you would only use $50 of the benefits, the same card would cost you $45 more than the value you receive.
Before You Choose a Card With an Annual Fee
Ask yourself three questions: Will I use the benefits? What value will I realistically receive? And is that value greater than the annual fee? Looking at those numbers can help you compare a fee-based card with a no-annual-fee alternative.
Already Have a Card Offer?
Compare the annual fee with the benefits you expect to use, then look at the APR and other costs. The right card depends on how you actually plan to use it.
Related reading: Learn how to compare credit card offers before choosing a card.