What’s the Deal With Annual Credit Card Fees?

annual fees

In the miles and points world, we often recommend readers about the best tips and tricks to maximize and improve their travel experiences. Readers love signing up for the best credit card offers. They help jump start your travel plans by providing a large chunk of miles in the form of sign-up bonuses. However, these cards often come with hefty annual fees.

Premium Credit Cards

However, credit card annual fees often receive a lot of attention. The Chase Sapphire Reserve card generated a huge amount of buzz when it initially launched with a 100,000 points offer. We’ve seen steady increases in annual fees for card like the American Express Platinum Card, The American Express Gold Card as well as the business version of the Platinum Card.

While these increases in annual fees have come in along with an addition of benefits, are these cards still really worth it? How should we really be viewing annual fees?

Annual Fees

An annual fee is an amount that gets charged once each year on your credit card statement. Think about this like a membership fee for a sports club or any professional association. Irrespective of how many benefits you derive your membership, you still have to pay that fee.

Most issuers charge the annual fee on the very first statement that closes after you sign up for the card.

Justifying the Annual Fee

Credit card reviews often talk about the benefits and how you can maximize the annual fee that you’re paying. This is largely true. However, many people make the mistake about thinking that benefits actually discount your annual fee. They don’t. These are essentially rebate programs.

For example, you pay the $250 annual fee on the American Express Gold Card. You use the $100 airline fee credit and the monthly dining credit totaling to $120 ($10 x 12). What this means is that you’ve redeemed $220 out of the $250 you spent on the annual fee.

Effective Annual Fees

Net annual fee or effective annual fee is a commonly used term to talk about how these rebate programs help reduce your travel costs. I think this term is both useful as well as misleading. Let me explain.

It’s correct to use this term in a scenario where I’m not drastically changing my behavior as a customer. Continuing the example about the American Express Gold Card, the annual fee is justified if I’m using the airline fee credit benefit for an airline that I’d fly even if I didn’t have the card. Also, the dining credit would only be justified if I were already eating at the restaurants before I had the card. Card issuers make a lot of money with partnerships. These credits or rebates are designed to influence your behavior and make you switch from brand A to brand B.

It’s incorrect to use the term in a scenario where I’m going out of the way to earn back the money I’ve paid out in annual fees. For example, when I was residing outside the US, I found no sense to hold the American Express Platinum card as the airline fee credit benefit was worthless for non-US airlines.

The Pundit’s Mantra

a body of water with clouds and mountains in the background
Attain your travel goal by picking the correct card


All said and done, annual fees are an amount you owe to the bank no matter what. I always recommend aligning your travel goals smartly with the credit card that you want to sign up for.

It’s always prudent to look at the annual fee as an actual expense and then map out how the benefits stack up in comparison to the annual fee. No matter how the benefits, but if they’re making you go out of your way to change your consumer behavior drastically, then they may not be worth the effort.

What do you think about paying hefty annual fees? Do you think they’re really worth it? Let us know in the comments section.

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  1. SounderTID says

    It’s kind of fun to try a business class lounge the first couple times. There may be a card that really provides service you enjoy, but I have been too reluctant to cancel cards.

    I later learned it’s fine to cancel cards without free downgrade options because it doesn’t actually hurt my FICO for age of account. The good payment record stays on our credit reports for 10 years after closing an account.

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