I’m a credit cards editor who hates annual-fee cards. Here’s why my colleague thinks I should reconsider

Many of today’s best credit cards carry annual fees, and for many cardholders, the cost is more than worth it. 

But not for me. 

Premium cards offer perks like travel and shopping credits, lounge access and numerous other benefits that can easily justify their cost, but I don’t travel frequently and I’m not a big spender, so a no-annual-fee card has always seemed like a much better fit for my lifestyle. 

I’ve never had a rewards credit card I needed to pay for, and though I spend all day researching and writing about credit cards, I’ve yet to be convinced that the benefits of a premium card make paying an annual fee worth it. 

Why add the stress of an annual fee when I can earn rewards with little to no effort?

My colleague, credit card expert and writer Ryan Flanigan, deeply disagrees. He squeezes a ton of value out of pricey cards and holds over 50 cards with an annual fee. For me, the higher the annual fee, the more money I’m wasting. For Ryan, the higher the annual fee, the more value you’ll get in return. 

Ryan is determined to convince me that an annual-fee card deserves a place in my wallet. Here’s a look at why I’m so resistant, why many rewards card fans think paying an annual fee is almost always worth it and how you can compare cards with and without annual fees to see which makes the most sense for you.

Reason #1: I was taught to always avoid fees

When I was growing up in the 1980s, credit cards were just gaining traction and becoming the preferred payment method. I remember being fascinated by the strange, clunky contraption the cashier would use to duplicate credit cards on receipt slips — all the more since my parents rarely paid with a card. 

They only held one card between them, and they treated it gingerly. As immigrants who’d come to the U.S. in the 1970s, their sole financial goal was to save money and avoid unnecessary costs. For them, a credit card was a substitute for cash in an emergency  — nothing more, nothing less. Paying credit card fees when you didn’t have to was frivolous and lavish. 

Ryan acknowledges my parents’ perspective on cards made sense for immigrants at that time, but he stresses just how much cards have changed since. As Ryan sees it, credit cards have evolved from emergency-use-only to an effective way to earn passive income. 

“Think of credit cards the same way you’d think of any investment. Credit cards can generate strong passive returns in your everyday life that can supplement your income,” he says. “Today’s cards offer exponentially more in terms of rewards and benefits, so it makes more sense than ever to use them.”

It’s true: I’m not in the same position as my parents were in the 1980s. I use credit cards every day and enjoy earning rewards for my spending. 

Still, I can’t shake off my parent’s perspective: Be wary of added costs, especially when you can easily avoid them.  

Reason #2: I won’t use the perks

Cards with high annual fees often come with a boatload of perks that help justify their cost. 

For instance, many cards offer statement credits for Uber, DashPass or Lyft that could save you hundreds each year. The best travel cards also boast impressive travel-centric perks like annual credits for flights and hotels, complimentary lounge access or statement credits for TSA PreCheck®. 

But I haven’t used a food delivery service in over six months, and I rarely fly enough to take advantage of the most valuable travel perks. 

When deciding if an annual-fee card is right for you, it’s important to know whether or not you will use the card’s benefits. Since I won’t take advantage of many of these perks, it’s hard to justify paying an annual fee for them.

Paying less than the balance means high-interest charges. Beyond paying the actual interest charge, you’re losing the opportunity to do something productive with that money.

— Reena Thomas, Ph.D.
Editor II, Credit Cards

Ryan agrees that a card has to fit your needs to make an annual fee worth it: “If a card doesn’t meet my lifestyle and value criteria, it won’t keep its place in my portfolio.” 

I’ve always associated perks — especially travel perks — with premium cards, so not taking advantage of them seems like a waste. But I don’t want to force myself to use perks simply to justify an annual fee. If I have to change my routine or travel habits, won’t a card’s perks be more of an inconvenience?

However, Ryan points out that perks aren’t the only way premium cards offer value. A rewards card with a low annual fee may also offer an “outsized rewards rate” that easily justifies its cost.

“You have to be smart with annual-fee cards — as you would with any aspect of personal finance,” he says. “Don’t cut off the possibility of robust returns without proper consideration.” 

But to make the most of a higher rewards rate, I’d have to boost my spending. And that makes me nervous.

Reason #3: I won’t spend enough to offset the fees

Another factor in choosing between a premium card and a card with no annual fee is being able to offset the fee through rewards without changing your spending habits. If a card’s bonus categories fit your spending, a high rewards rate can more than make up for a high annual fee.

But with a no-annual-fee card, offsetting costs isn’t an issue. I can spend as much or as little as I wish and know I’ll always come out on top with rewards. 

I worry if I had a card with an annual fee, I’d be tempted to overspend just to make sure I was getting my money’s worth or spend in categories I normally wouldn’t.  

For example, the Chase Sapphire Preferred card’s top rate is 5X points on travel, a category that doesn’t fit me well. My best chance at offsetting the fee comes from the card’s 3X points on dining, but even at that rate, it’ll be tough for me to earn enough to make the annual fee worth it.

For example, $1,000 in dining purchases with the Sapphire Preferred would earn $30 cash back (3X points at a 1-cent-per-point redemption value). But this card costs $95 per year to hold, so you’d need to earn another $65 in rewards just to offset the fee.

In contrast, the no-annual-fee Citi Custom Cash® Card earns 5 percent back on the first $500 you spend in your top eligible bonus category each billing cycle. If your top spending category was dining, a $1,000 spend in a single billing cycle would earn you $30 with the Citi Custom Cash, with no fee to offset. 

Another way of looking at it: A $3,175 spend on dining with the Sapphire Preferred card would earn $95 cash back — just enough to offset the annual fee — leaving you $0 in overall rewards value; the same spend in a single billing cycle with the Custom Cash would put you up about $52 in cash back.

Ryan agrees that it’s important to examine your budget and spending habits before determining whether an annual-fee card makes sense. But as he reminded me: “People often spend more on everyday expenses than they think, so premium cards could still offer more value overall.” 

Still, I can’t help but think a no-annual-fee card is just easier to manage with nothing to offset. Less hassle, less worry.  

Reason #4: I’ll miss the fine print

Something else to consider when evaluating cards with an annual fee versus those without:  Even if you want to use a card’s perks, can you jump through all the hoops? 

Something like an annual hotel credit will likely come with strings attached, such as blackout dates or other limitations in fine print. Some perk offers also expire. On top of that, an issuer can modify a card’s benefits, like lounge access, at any time. There’s no guarantee the perks will help you offset the fee long term, 

For example, you can get a complimentary 12 months of DashPass with the Chase Sapphire Preferred, but this offer ends Dec. 31, 2027. At that point, I’d need to re-evaluate the card’s value and cost. 

However, Ryan assures me the fine print is not that complicated. “Most statement credits are straightforward to use,” he says. “Or you can also look at cards that aren’t as difficult to understand. Not every card has a laundry list of things to consider.” 

For Ryan, taking the time to understand a card’s redemption options is worth it for the potential returns. Plus, no-annual-fee cards also have restrictions — such as spending caps — which can come back to bite you as much as annual fees themselves. 

“I’d argue you’d find more ‘gotchas’ on a no-annual-fee card, as [issuers] would be trying harder to limit their losses since you aren’t paying a fee,” says Ryan. “With annual-fee cards, you are essentially paying for more sustainable and robust privileges, which make them more trustworthy in my book.”

My counter: I may have to consider spending caps and other fine print for a no-annual-fee card, but its value isn’t largely dependent on perks. Any limitations or changes would likely have minimal impact on a no-annual-fee card’s overall quality.

How to compare cards with and without annual fees

My discussion with Ryan showcases the potential value of a premium card — but only if you choose the right one. If you’re like me, you may find that even if you can get more value out of a premium card on paper, a no-annual-fee card may still be a better fit for your lifestyle.

To demonstrate the value potential, benefits and drawbacks of both card types, Ryan compared two Capital One travel cards in the Venture family. Here’s a look at how much you can expect to earn with each based on Bankrate’s card value rating methodology as well as how the value of their perks and rewards stack up given their cost:

As you can see, while the Capital One Venture X has a relatively high annual fee, its two annual bonuses alone (the $300 travel credit plus the 10,000-mile anniversary bonus, worth $100 in Capital One travel) offset this cost without requiring any spending to earn rewards . 

According to Ryan, as long as you can use these perks by booking 10,000 miles’ worth of rewards travel and spending the travel credit, you’ll come out ahead without spending another cent. That’s not to mention the card’s other valuable features, like its higher rewards rate and Priority Pass Select membership. 

It’s easy to see how taking advantage of the Venture X’s perks could net you much more value overall, despite its high annual fee.

However, if you don’t use these perks, we estimate you may only earn around $118 in rewards value after subtracting the annual fee — significantly less than you’d earn with the VentureOne. Occasional travelers who might not fly even once a year (such as myself) will likely prefer the streamlined no-fee version. 

According to Ryan, this same logic applies to most comparisons between annual fee cards and their no-fee counterparts. Consider your spending habits and whether you’ll use a card’s perks or earn enough in rewards to make an annual-fee card worth it. 

The bottom line: Am I convinced?

Yes and no. Whether it makes sense to get a card with an annual fee will depend on a lot of factors, including personal style and preferences, but I’ll admit: Ryan makes a great case. 

Putting it simply, he says:

If you have to spend the money anyway, you might as well help yourself by getting the maximum return on your spending.

— Reena Thomas, Ph.D.
Editor II, Credit Cards

It’s hard to argue with him there. As long as the card doesn’t make me alter my routine or cause me to overspend to offset the annual fee, it might be worth taking the leap. And as Ryan advises, I can always downgrade my card if it doesn’t suit my needs anymore.

I’ll probably hang on to my cozy no-annual-fee cards for a while longer, but while my parents taught me never to waste money, they also taught me to never pass up a good deal!

Ryan Flanigan contributed additional reporting to this piece.