6 Reasons You Need a Credit Card with an Annual Fee
As a financially savvy adult, you like to watch your spending to make sure that you’re not wasting money. You cut the cable bill and opt for a less expensive Hulu or Netflix account. You drop to a lower plan for your cell phone because you don’t need the more expensive plan with all that data. You might think that having a credit card with an annual fee should be shunned because there are a ton of great options out there that don’t carry a fee. But as with all of our decisions, we have to take a closer look to make sure we are making the best choice.
Annual fees aren’t just there so that the card company can make money off you. In fact, many card companies issue multiple cards: some with fees and some without. Here are six reasons that paying the annual fee may work out in your favor.
1. Better Rewards
Obviously the rewards must be greater in order to entice people to use a card that carries a fee. They could be a greater percentage of cash back, more reward miles per dollar spent, or some additional perks.
2. Bigger Sign Up Bonus
Most cards offer a sign up bonus. But when you sign up with a card that carries an annual fee, you can generally see an even larger sign up bonus (sometimes as much as double the “free” card). That boost could be enough to get you a free trip.
3. Waived Fees
Wait, paying a fee waives a fee? It depends on the card. Credit card companies have the ability to push a lot of business to airlines and other travel providers. But they want to offer those perks to their best members. If you’re looking for waived luggage fees, waived airport lounge fees and other waived fees, then the annual fee is necessary.
4. Extra Perks
The influence that the credit card companies have provides additional perks. Many credit card companies offer discounts on everything from restaurants to hotels to car rentals to retail shopping. That annual fee could save you a lot of money with the right perks.
5. Lower Interest Rates
We don’t recommend carrying a balance on your credit card, but sometimes it is unavoidable if an emergency pops up. Suppose you have a small balance of $2,000, and your “free” card charges 19% interest while your annual fee card charges 11%. You would pay an extra $160 over the course of a year with the “free” card.
6. Save Money
If the point is to save money, why are we spending money? The reality is that the extra rewards that a card with an annual fee comes with offsets the fee itself. Let’s suppose your “free” card offers 1% cash back and your annual fee card offers 1.75%. If you spend $30,000 each year, you earn $225 more with you annual fee card. Even if the fee is $100 each year, you’re still coming out ahead.
Choose the Right Annual Fee Card
Whether a card with an annual fee is the right thing for you depends on how you use your credit card. Do you travel a lot and need a card that rewards you with bonus points on travel? Do you spend a lot on retail goods and need a cash back card? Are you traveling outside the country and want to avoid the foreign transaction fee? Depending on what your end goal is, there’s a good chance that having a card with an annual fee makes more economic sense than trying to avoid the annual fee.