Credit card annual fees can unlock better benefits — here’s how it works

Credit cards with annual fees can offer massive benefits, but they may not be right for everyone.

While credit cards can be a useful tool to have in your back pocket, they aren’t always free. There are credit card fees for things like going over your credit limit or making a late payment. However, some also charge an annual fee, which is charged for the privilege of having the account.

If you’ve been thinking of opening a new card, it’s important to evaluate the card's rates and fees and what ultimate rewards   —  such as cash rewards or rewards programs — or other offers you're getting in exchange. If you’re considering a card that has an annual fee, you’ll ultimately want to take the time to compare a few different options, so that you can choose the one that will give you the most bang for your buck.

Here’s what you need to know about annual fee credit cards to get started.


Is it work getting a credit card with an annual fee?

As stated above, a credit card annual fee is paid in exchange for the ability to keep your account open. Some of these fees are capped at just under $100 while others can cost hundreds of dollars per year.


The fee is usually charged when you first open your account. After that, it’s charged annually on your anniversary of becoming a cardholder. However, some issuers will waive your fee for the first year as part of their initial sign-up bonus.

Why would anyone pay an annual fee for a credit card?

The answer to the question of why anyone would pay an annual fee for a credit card is simple: these cards usually offer the most lucrative rewards. Typically, the higher an annual fee is, the more valuable the benefits that the card has to offer.

Credit cards with annual fees work by charging you a fee for the privilege of earning the rewards. The more you spend on the card, generally, the more rewards points you earn. Eventually, you should spend enough that you break even on the annual fee and anything beyond that point will be of benefit to you.


Most credit cards with an annual fee will offer you rewards. Specific cards offer specific types of rewards:

Branded hotel cards offer hotel points.

Branded airline or travel cards offer airline miles or travel credits.

Cash-back cards offer cash rewards in the form of a statement credit or check.

General travel cards offer miles that are redeemable with different servicers.

Gas credit cards offer cash back or reward dollars at gas stations

Is it worth paying an annual fee for a credit card?

When you look into a specific card, you’ll want to consider the fee amount, the way in which you earn rewards, and how well the rewards match your lifestyle. With that in mind, here are a few questions that you can ask yourself to help determine whether paying an annual fee is right for you.


Do you have another option?

Some people end up paying annual fees for their credit cards because they don’t have a better option available to them. In particular, those with average credit that's poor or those with short credit histories may have to pay fees for the secured cards that help them with building credit or improving their credit score simply because a no-fee option isn't available.

Can you afford to pay the fee?

First, it’s crucial to consider how much you’ll be expected to pay in an annual fee. As mentioned above, these fees can sometimes end up amounting to hundreds of dollars per year. It isn’t a good idea to have that fee show up on your statement if it means you’re going to take on more debt.

Does the reward structure match your spending habits?

That said, even if you can afford to pay the fee, you need to be sure that you understand how the credit card issuer’s rewards program works, so you’ll feel confident that the card you’ve chosen matches your spending habits. If you aren’t confident that you’ll earn enough rewards to break even on the annual fee, that particular card may not be worth it for you.


Will you use the benefits?

Finally, if you don’t use the benefits and perks that are offered to you, it may not be worth paying the annual fee for a card. For example, if your card offers access to elite airport lounges, but you’re always running to catch your flight at the last minute, it’s important to be honest with yourself about whether you will truly get value from the card.