When (and When Not) to Get an Annual-Fee Credit Card

At first glance, an annual fee on a credit card can appear as an unnecessary expense. What people often don’t understand are the perks and benefits usually offered by these types of cards. Used sensibly, credit cards with annual fees can actually make consumers money. And with so many card offers to choose from, the question becomes which annual-fee card fits a person’s lifestyle best.

When considering a new credit card, it makes sense to pay an annual fee if the perks it affords outweigh its cost. Annual fees can range in amount, but are alike in that they require a single yearly payment from the card issuer to maintain the account. The initial fee (for the first year of the card) is sometimes waived by the card issuer, while future payments are due on a recurring annual basis.

There are a number of different perks and advantages annual fees can enable. One example is cash back on certain purchases in the form of a percentage refund to the cardholder. Other perks include travel benefits, such as air miles, hotel points and access to participating airport lounges. Since the costs are pooled across all card users, the issuer is able to negotiate with other service providers for large reductions in price. To be eligible to apply for these types of cards, typically a consumer will need a medium-to-high credit score.

Free to be Zero Fee 

For other card applicants, it may make sense to open a $0 annual-fee credit card account if the benefits of the fee don't outweigh the cost. Some card users are not interested in travel perks, or may not see enough value in cash back rewards to cover the annual fee cost. In those instances, $0 annual-fee cards can be more than adequate. 

Annual fees can provide credit card issuers with the resources needed to enhance the experience of their customers, from travel benefits to cash back rewards and other promotions. Whether it’s wiser to opt in or avoid the fee comes down to a person’s spending habits and financial situation. When making that decision, it’s worth comparing card offers to figure out what option makes the most sense.