The value in paying annual fees
Understanding annual fees
An annual fee is a recurring charge that credit cardholders pay each year for the “privilege” of using a credit card and accessing its benefits. Today, we're diving into the often-misunderstood world of travel rewards cards and why paying annual fees can actually be a smart move.
At first glance, paying money just to use a credit card might seem crazy, but when you look closer, you'll find that the benefits of these cards can far outweigh the cost. Travel credit cards can provide cardholders with generous welcome bonuses plus the opportunity to earn points or miles for every dollar spent, which can then be redeemed for flights, hotel stays, and more. And beyond earning points, many travel rewards cards come with extra perks including airport lounge access, travel insurance, complimentary upgrades, and even statement credits for travel expenses. In order to make the most of your travel rewards card, be sure to take advantage of every perk possible!
Examples of benefits
Let’s take the Chase Sapphire Preferred card for example. In case you haven’t heard us blabbing about it already, check out our blog post about this card and why we love it.
Chase Sapphire Preferred
Annual fee: $95
Welcome bonus (standard): 60,000 points worth $600 minimum (or a lot more if you transfer the points to transfer partners)
Promotional welcome bonus (current): 75,000 points worth $750 minimum (or a lot more if you transfer the points to transfer partners)
Earning potential: 3 points per dollar spent on dining out, select streaming services and online grocery purchases; earn 5 points per dollar on travel purchased through Chase travel portal and 2 points per dollar on all other travel; 1 point per dollar on all other purchases; also earn a 10% anniversary bonus each year.
Annual credit: $50 annual credit on hotel reservations booked through Chase travel portal
Other: Extensive travel protection including trip delay or cancellation coverage, baggage delay insurance and rental car coverage. Ability to transfer Chase points out to travel partners. No foreign transaction fees.
Bottom line: There is a reason why this is the #1 recommended travel rewards card! This is a must-have for anyone interested in award travel.
Another awesome card that we personally have in our wallets is the Capital One Venture X card. Here’s the lowdown on it:
Capital One Venture X
Annual fee: $395
Welcome bonus: 75,000 Capital One Venture miles worth $750 minimum (or a lot more if you transfer the points to transfer partners)
Earning potential: 10 points per dollar on hotels and rental cars and 5 points per dollar on flights purchased through Capital One travel portal; 2 points on everything else (which makes this an excellent “daily driver” card if you’re not working on another minimum spend).
Annual credit: $300 annual statement credit on travel purchases booked through the Capital One travel portal
Other: TSA Pre-Check/Global Entry statement credit up to $100; unlimited access to Priority Pass, Capital One lounges, and more than 100 Plaza Premium lounges; 10,000 point anniversary bonus each year worth at least $100. Ability to transfer Capital One points out to transfer partners.
Bottom line: This is a premium card with one of its biggest perks being unlimited access to hundreds of airport lounges. That aside, if all you do is utilize the $300 annual statement credit and collect the 10,000 point anniversary bonus, you’ll still come out ahead.
Conclusion
If someone offered you $750 or more in exchange for $95, would you take it? We sure would!
If you are thinking of applying for a credit card with an annual fee, evaluate whether the perks are worthwhile to you. If you can use them and they will more than offset the cost of the annual fee (and if they offer a generous welcome bonus that you can use for almost free travel!), it can make a lot of sense to open that card.
Friendly reminder: We are not financial advisers, we are simply sharing our method and approach with you. Of course, it's important to use credit cards responsibly. Pay off your balance in full each month to avoid interest charges, and never spend more than you can afford just to earn rewards.
Let us know if you have any questions!
❤️ Liz
