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Credit Card Annual Fees: What They Cover and When They’re Worth It

Make sure the benefits will outweigh the costs.

AJ Watt/Getty Images

Some credit cards charge an annual fee -- a once-per-year charge for the privilege of being a cardholder. Others don’t. On the whole, many cards that do charge offer superior rewards and perks than those that don’t. But the more expensive, higher-end cards are usually designed for credit card power users and may be overkill for the typical consumer. Ultimately, your spending habits will dictate whether a particular credit card with an annual fee is worth the cost. Here’s how to figure it out.  

What is an annual fee?

A credit card annual fee is typically a set amount you pay once a year to remain an account holder. If you opened your card in May, for instance, you’d owe the annual fee every subsequent May for as long as the account stays open. This fee is generally automatically added to your card balance and will show up on your billing statement. 

When is it worth the cost?

An annual fee card may be the right option for you when you can make the most of a card’s perks. This involves knowing what those perks are and their dollar value. Knowing how you’ll use the card and looking at your past behavior are good indicators to help determine if the annual fee is worth it. If the benefits aren’t worth more than the cost, then you might be better off with a no-annual-fee credit card with a slightly lower rewards rate.

Which types of cards have annual fees?

Generally, credit cards that charge an annual fee fall into a few main categories:  

  • Premium cards with luxury perks like access to airport lounges, free hotel stays and flightupgrades.
  • Secured cards require a security deposit -- and may charge a low annual fee. 
  • Rewards cards with top cash back and rewards rates (say, 3 points for every dollar in certain categories, instead of 1 point for every dollar) typically charge annual fees. 
  • Travel cards with higher rewards rates and expanded travel perks like trip cancellation, lost luggage insurance and more.
  • Cards with high welcome bonuses -- think 100,000 points if you spend X amount in the first three months.

When a card with an annual fee makes sense

In some cases, a card with an annual fee might offer you a higher tier of rewards that makes better financial sense for your lifestyle. The key is to choose a card with perks that best suit you and is a match for your spending habits, and not to go strictly by what your friends or relatives may use. 

Here are a few instances when paying an annual fee might be worthwhile.

To unlock greater rewards

Premium credit card rewards might require choosing one with an annual fee. Finding the right card to fit your lifestyle -- i.e. a travel card if you’re a frequent flyer or a dining card if you eat at restaurants often -- can help you maximize your rewards.

To enjoy more perks

Besides rewards, paying for a card with an annual fee could net you greater perks, perhaps making it worth the cost. 

The types of perks could vary widely, and there’s a glut of cards to suit different lifestyles, interests and preferences. For instance: You might enjoy free cellphone protection through a business card, trip cancellation and lost baggage protection from a travel card, or generous cash back when pumping fuel on a gascard. There are enhanced perks for just about any type of credit card, but those with annual fees tend to boast better perks. 

To travel for less 

If you travel frequently, it could be worth it to get a travel credit card that comes with perks that either help you save while traveling or help make for more enjoyable journeying. 

You’d want to sit down and do simple math to figure out roughly how much you’d save on travel-related expenses, such as perks at the hotel, collision insurance on your rental car and food at the airport. 

To take advantage of a generous welcome offer 

A generous signup offer can help you earn points quickly -- and might even wipe out the annual fee. To reap the offer, you typically need to spend a certain amount within the first few months. It’s also important to figure out if the amount you’re required to spend is reasonable for you. For instance, if you need to spend $5,000 during the first three months but would more realistically spend $2,000, it might not be worth your while. 

While a high welcome bonus might entice you, it’s important to look at all the features and benefits of a particular credit card. That way, you won’t open a card to scoop up the signup bonus, only to find the card to be of diminishing value down the line. 

What if I want to stop paying an annual fee?

If you’ve had your card for a while and want to stop paying the annual fee, you could opt to downgrade it to one with a lower or no fee by calling your credit card issuer. You could also consider canceling the card, although you should weigh the pros and cons first. Closing a credit card typically dings your credit score because it increases your credit utilization ratio -- the ratio of your current balances to your available credit -- and can reduce the length of your credit history. 

How do you get a credit card annual fee waived?

There are a few different ways you can try to negotiate the annual fee with your issuer, but nothing is guaranteed. Start by calling customer service and ask if you can have a waiver for your annual fee. You’ll need to provide identifyinginformation like your name and account number. 

If your issuer offers a waiver, they may require you to spend a certain amount of money within a specific timeframe. For example, the issuer may provide a credit for the annual fee if you spend $1,200 with the card in a specified timeframe. If you can’t meet the requirements, your issuer may be able to extend the timeframe or lower the spending threshold. 

If all else fails, you could reach out to your issuer’s retention department and tell them you want to cancel your card because of its annual fee. They may offer to waive the fee or downgrade your card to a no-annual-fee version to save your business. However, keep in mind that they might say no. If you find little success with negotiating, you’ll need to decide if hanging on to a card with an annual fee is actually worth it

When to steer clear of annual fee cards

It might be better to skip an annual fee card if you simply won’t be taking advantage of its benefits. Just as you might get dazzled by a smart home device with innovative features and all the bells and whistles, only to find it unused in a corner six months down the line, a card with perks gone untapped could turn out to be a waste of money. 

You might also want to steer clear of annual fee cards if you anticipate reaping the perks the first year, but not in the following years. You’ll also want to not open such a credit card if you think the large welcome bonuses or the ability to reap massive rewards points could lead to overspending. The goal is to use these perks to your advantage to help you financially, not have you entrenched in a debt hole. 

And if there are other cards that are a more basic version or if you simply can’t afford the fee, no matter how great the perks are, the damage to your wallet won’t justify the cost.

The bottom line

If you don’t spend enough to take advantage of a particular card’s benefits, you will be better off with a no-annual-fee credit card. However, if the card’s rewards and benefits make up for the cost of the fee, the annual price tag may actually be worth it.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Jackie Lam is a contributor for CNET Money. A personal finance writer for over 8 years, she covers money management, insurance, investing, banking and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives and overcome mental and emotional blocks. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming and daydreaming about stickers.