PHOTO: Are your credit card's bonus perks worth the annual fee? (photo courtesy of Thinkstock)
Most of the top rewards credit cards let you try out their rewards program and benefits for the first year for free. The popular Barclaycard Arrival Plus World Elite MasterCard, for example, offers a signup bonus and a full 12 months of fee-freedom before hitting you with the inevitable - the $89 annual fee.
Because of the way these offers are set up, a ton of people sign up for new cards, earn a hefty signup bonus, then cancel their cards when the first fee hits. This isn’t a bad strategy per se, but it might be a short-sighted one.
Four Times it Makes Sense to Pay Your Credit Card’s Annual Fee
While people who don’t spend a lot on credit may be better off with a no-fee card, there are times when paying that fee – even for several years – can make sense. Here are a few examples:
1) You earn more than enough rewards to make up for the fee
People who spend a lot on credit card earn enough rewards to make annual fees worth it – particularly if they choose a card that helps them optimize their spending. This is especially true if you spend a lot with a card’s bonus categories. If you spend a ton on travel and dining, for example, paying the Chase Sapphire Preferred $95 fee to earn 2x points can be well worth it.
2) Additional “perks” make the fee worth it
Most of the top rewards credit cards offer valuable perks that people pay for. These perks can include things like trip cancellation/interruption insurance, extended warranties, primary auto insurance, purchase protection and more. If you get a ton of benefit from any of these protections or use them often, paying an annual fee can make a ton of sense.
READ MORE:5 Signs You’re Ready for a Rewards Credit Card
3) You get an annual “bonus”
Some cards offer an annual benefit that makes paying your annual fee worth it every year. Take the IHG Rewards Club Select Credit Card, for example. With this card, you get a free anniversary night at any IHG property worldwide every year. Since you can use this free night at expensive properties that cost $500 or more, paying the $49 annual fee is a no-brainer.
4) You place a lot of value in transfer partners
Some people place a ton of value in specific transfer partners, particularly airline partners. In that case, they can justify paying an annual fee to be able to transfer their rewards points to their favorite loyalty program. If you fly Southwest or United a ton and have the Chase Sapphire Preferred card, for example, it can make sense to pay the fee and keep the card so you can top up your account anytime.
READ MORE: The Best Business Credit Cards for Travel
The Bottom Line:
While it might seem silly to pay for the right to earn free travel, there are times when it can make sense. And if you’re fee-averse, there’s nothing wrong with that, either. While plenty of rewards credit cards charge an annual fee after the first year, there are just as many that never charge a fee. Before you sign up for any type of rewards card, make sure your decision is an informed one.