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When is a credit card annual fee worth it?

By , CardRatings contributor
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    When are annual fees worth it?Unless you're someone who needs a specialist credit card that helps people rebuild their credit, chances are you can choose from a whole array of plastic that doesn't levy an annual fee. In fact, those fees are a somewhat rare nowadays. So why would consumers volunteer to pay for something they could get free?

    Obviously, they wouldn't. The truth is, those fees pay for perks, features and, in some cases, higher rewards-earning opportunities that groups with particular lifestyles may find highly valuable - and that might be substantially more expensive if purchased separately. If you're in one of those groups, you may be surprised by the value for the money that annual fees can deliver.

    Not convinced? Well, card issuers understand your skepticism, which is why many waive annual fees for the first year, allowing you to conduct your own risk-free cost-benefit analysis, but even among cards that don't waive the fee for the first year, don't just automatically move on with your credit card search. It could be that those annual fees bring in more value than you anticipate. Take a look at a few times when an annual fee just might be worth it.

    When you're a frequent traveler

    When it comes to annual fees and travelers, the trick is to look beyond earning rewards to the various features and perks that would make your travel more comfortable or convenient and whether you'll actually put those perks to good use. In at least a few cases, credit cards with annual fees also offer significant discounts or even statement credits for typical travel fees - when you figure in the discounts or credit, the net annual fee goes down.

    Take The Platinum Card® from American Express, for example. (American Express is a CardRatings advertiser) The card comes with a not-cheap annual fee of $450, but it also offers cardholders the opportunity to claim up to $200 in statement credit annually to cover incidental airline fees like checked bags or in-flight meals with a pre-selected airline. Take advantage of the full credit and you've effectively reduced the annual fee to $250.

    But there's more, consider that The Platinum Card® from American Express also offers cardholders access to airport lounges around the globe and you'll see that you're saving yourself another chunk of change if you are someone who typically pays for a membership to airport lounges.

    >>> Are airport lounges your travel style? Check out CardRatings' picks for "Best credit cards for airport lounge access."

    Even when we stop talking about specific money-saving perks with the Platinum Card® from American Express, there's still plenty to figure in when you're considering whether the annual fee is worth it. There's the points earning that could add up to free flights, complimentary Hilton HHonors™ Gold status, 24/7 concierge services and more.

    "But $450 as an annual fee is still a tough pill to swallow," you say. That's ok, there are other options with lower fees that still offer perks for the frequent traveler.

    The Barclaycard Arrival Plus™ World Elite MasterCard® centers its value on extra rewards rather than perks. It's currently promising a 50,000-mile (worth a $500 statement credit to offset travel purchases) sign-up bonus for new customers who spend $3,000 on the card during the first 90 days they have it. You earn double miles (two per dollar) on all your purchases, and each time you redeem, you'll receive 5 percent of your miles back to use toward your next redemption.

    It's an impressive earning rate with plenty of opportunity to rack up free or discounted travel, and the sign-up bonus worth $500 puts into perspective the $89 annual fee, which is waived in the first year anyway. Redeeming is easy: You just use the card to pay for a qualifying travel purchase of $100 or more (so no blackout dates or restrictions on flights), and you then have 120 days to tell Barclaycard you want to use your accumulated points for all or part of it. And if your travel takes you abroad, add the lack of foreign transaction fees to the list of things money-saving features of this card with a reasonable annual fee.

    By the way, generous rewards may be the Barclaycard Arrival Plus™ World Elite MasterCard®'s most obvious feature, but it's also within the MasterCard World Elite program, which delivers concierge services and luxury travel benefits, a few perks that could make that annual fee worth it.

    When you prefer to travel in comfort and style

    It's one thing to pay under $100 for an annual fee, but $450? From day one? Welcome to the rarefied world of luxury credit cards. You already met one of the cards above - The Platinum Card® from American Express - but there are a few others that are fighting to make themselves worthy of a hefty annual fee. One of those is the much-buzzed-about Chase Sapphire Reserve℠.

    This card got the credit card world's attention in mid-2016 with it's out-of-this world sign-up offer: While the initial offer has expired online, you can still earn 50,000 bonus points, worth $750 in travel when you redeem through Chase Ultimate Rewards®, after new cardholders spend $4,000 in the first three months.

    Still, the point of this one isn't necessarily the rewards, though they are impressive at three points per dollar spent on dining and travel and one point per dollar on everything else. It's the concierge service; the prestige (it is THE card right now); the perks and the savings, mostly on travel-related activities. Indeed, if you prefer staying in at home, this card may not be for you. But if you're on the move a lot, you stand to get:

    • Free lounge access at more than 900 airport lounges worldwide.
    • Complimentary benefits through the Luxury Hotel & Resort Collection, including breakfast for two, wi-fi and late checkout at more than 900 luxury hotels worldwide.
    • A refund of up to $300 in travel fees each calendar year (everything from airline tickets to hotel stays and more).
    • Your "Global Entry" or "TSA Precheck" fees paid (worth $100 or $85, respectively) every five years.
    • 50 percent more value for your points when you redeem for travel via Chase Ultimate Rewards®.
    • A whole list of other free perks.
    • No foreign transaction fees.

    Phew! If you have the sort of lifestyle where you use those services often, that $450 annual fee could be recovered very quickly ($300 of it can be reimbursed as statement credit for your travel related expenses). Oh, and it's worth mentioning that sign-up bonus again: 50,000 points worth $750 in travel.

    When you're using one card for all your purchases

    Back to earth, now, with the Venture From Capital One card's annual fee of just $59, waived in the first year. This card provides a great example of how an annual fee can still be worth it even if you aren't a globetrotter.

    • 40,000-mile sign-up bonus, worth $400 as a statement credit for travel purchases, if you spend $3,000 on purchases within the first three months.
    • A high earning rate of two miles per dollar spent on all purchases.
    • The card gets you Visa Signature® benefits, including concierge service; upgrades and special savings at selected hotels, resorts and spas; and discounts at certain brick-and-mortar and online retail stores.
    • No foreign transaction fees.

    For a lot of people, the flat two-miles-per-dollar earning rate will allow them to earn MORE points than with cards that offer tiered earning rates. It's a simple rewards-earning structure that will benefit a lot of folks who like to use their credit card often, but aren't interested in remembering where to spend more.

    When you want more hotel for less

    If you're a fan of fine hotels, you've probably stayed more than once at a Starwood-owned property. Its brands include St. Regis, The Luxury Collection, W Hotels, Le Méridien, Westin, Sheraton, Aloft, Element Hotels, Four Points by Sheraton and Tribute.

    The annual fee for the Starwood Preferred Guest® Credit Card from American Express is $95, waived in the first year. But, again, that can be quickly recouped by those who are frequent guests. To start with, there's a sign-up bonus of 25,000 "Starpoints" for those who are approved and spend (you guessed it) $3,000 in purchases within the first three months of their account being opened. But, for a limited time (through April 5, 2017), new cardholders can earn 10,000 more bonus points by spending an additional $2,000 within six months. 

    Then, from day one, you receive benefits and privileges within the hotel chain's Starwood Preferred Guest (SPG) loyalty program. You can earn up to five Starpoints for every dollar you spend on qualifying purchases at participating SPG hotels -two points as a cardmember and two or three as an SPG member depending on your level. You also earn one Starpoint per dollar for all other purchases. Meanwhile, you get a head start, in the form of extra credits, toward achieving SPG Elite, Gold or Platinum status. If you prefer, Starpoints can be redeemed for free flights with more than 150 airlines or transferred to the frequent flyer programs of nearly 30 airlines.

    To help you stay connected, the card provides free premium in-room Internet access - a significant savings for frequent hotel guests who generally pay for internet passes -at participating SPG hotels, along with the complimentary use of over a million Boingo Wi-Fi hotspots around the world. There are no foreign transaction fees, and you receive a wide range of typical American Express services and benefits.

    This is just one of many, many hotel-branded credit cards out there; the bottom line is that frequent hotel guests stand to recoup all or most of their credit card fee as they take advantage of the perks and discounts the card offers. The trick is to actually use the features and benefits available to you.

    When you want to fly with less fuss - and cost

    Are you noticing a trend? Those annual fees some credit cards charge are often offset if you're a traveler. Let's face it: traveling is expensive, so if paying a marginal credit card annual fee can net you some serious discounts or even freebies down the road, it's probably worth.

    One last specific instance in which an annual fee might be worth it for travelers: Airline credit cards.

    Airline credit cards are less popular than they once were, but some still offer a more comfortable experience and worthwhile rewards to those who use a particular carrier frequently. Take the Citi® / AAdvantage® Platinum Select® World Elite™ MasterCard®. (Citi is a CardRatings advertiser) Its $95 annual fee (waived the first 12 months, by the way) buys you a lot more than a record number of registered trademark symbols on your plastic, not least because it's offering for a limited time a sign-up bonus of 50,000 "AAdvantage miles" if you (all together now) spend $3,000 in purchases within the first three months. In addition, you get:

    • Your first eligible bag checked free on domestic itineraries - along with those of up to four companions traveling on your itinerary. That alone could save you a boatload of money each year.
    • Special boarding privileges to cut time wasted in airport lines.
    • Two AAdvantage miles for every $1 you spend on eligible American Airlines and US Airways purchases and one for all other purchases.
    • In-flight discounts: 25 percent off eligible food and beverage purchases.
    • Earnings on redeemed miles: 10 percent of the miles your redeem will be credited back to you.
    • $100 American Airlines flight discount every year after you spend $30,000 (starting from your annual fee date).

    When you want big, big cash-back rewards

    So you aren't dealing with a case of wanderlust? You prefer to stay close to home? Don't check out; there are a few instances in which an annual fee for a cash-back credit card could seriously be the right choice for you.

    Once again, we're going to talk about an American Express card. Cards from this issuer keep coming up presumably because those in its high-end target market may be less resistant to fees and also because they offer some serious benefits for the fee. But the Blue Cash Preferred® Card from American Express, which has an annual fee of $95, is very different from the others. Because, although you get many of the services and benefits you'd expect from this card issuer, this plastic is all about maximizing the best of all tangible rewards: cold, hard cash.

    That starts with a sign-up bonus of a $150 statement credit, and, just for a change, you have to spend only $1,000 in purchases on the card during the first three months after account opening. So that's almost two years' worth of the annual fee right there.

    But it's the cash back rewards rates, available only at U.S. outlets, that make this card truly exceptional. You earn an extraordinary 6 percent cash back on the first $6,000 of purchases made at supermarkets each year. Once you bust that cap, you earn 1 percent on those.

    But you also get 3 percent at gas stations and 1 percent of all other purchases, and neither of those is capped.

    If you're the type to stay close to home, this card could reap some serious cash-back for you - but you'll have to pay that annual fee to realize the rewards.

    A final word

    For a typical family, the Blue Cash Preferred® Card from American Express rewards could really add up, and effectively make that annual fee an irrelevance. But a car-less person who always eats out might just as well take that $95 and set it alight.

    And that's the most important point to recognize about credit cards with annual fees: They only work well for the people each card was designed for. If there's one that was devised with someone with your spending patterns in mind, you might well benefit by applying for it.

    It's important to do the math and realistically estimate your purchases and rewards as best you can. Tgere's a good chance the annual fee is worth it.

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