Are cards with an Annual Fee worth it?

stock credit card

If you follow me on my blog or twitter page here, then you know I recently got approved for the Chase Sapphire Preferred. I’m still on cloud nine about my approval since I was over “5/24”.
Like many rewards credit cards, this card comes with an annual fee. The Chase Sapphire Reserve’s annual fee is a hefty $450. Note: the annual fee is not waived the 1st year.

Trust me, I know what’s running through your head now, “There’s no way in the world I would pay $450 just to use a credit card”. Well, let me explain below how the VALUE you get from your card usually outweighs the cost of the annual fee. At least in the 1st year you have the card.

What is an Annual Fee

An annual fee is a fee that some credit cards charge for the benefit of using the credit card’s perks and benefits. Below are a few benefits the annual fee will allow you to receive:

  • price protection
  • extended warranties
  • primary rental car coverage
  • free FICO scores
  • trip cancellation/delay coverage
  • emergency travel assistance
  • baggage delay protection
  • airport lounge access
  • annual airline/travel credits
  • sign up bonus

Most credit cards with an annual fee, has a fee range between $59 and $450. For example, the Chase Sapphire Preferred card has a $95 annual fee, but the fee is waived for the first year. Currently, this card is still offering a 50,000 sign up bonus when you spend $4,000 on purchases in the first 3 months. However, like I mentioned above, the Chase Sapphire Reserve’s annual fee is $450 dollars.

Deciding if Annual Fee is Worth It

As I always state, everyone’s travel goals are different. Likewise, deciding on how much to spend on an annual fee will depend on your budget and if your ROI (return on investment) from the card benefits are high. If your travel goals prevent you from utilizing or redeeming the benefits of the card, then a card with a annual fee is not for you.

Below I will discuss three measures I use to decide if the annual fee is worth it. Specifically, I like to evaluate the card’s points earning potential, rental car protection, and any available airline/travel credits.

Points Earning potential

The first aspect of evaluating where or not to apply for a card with an annual fee is to look at the point earning structure. If a card is charging you an annual fee and only giving you 1x on all               purchases, you may need to consider other cards. Three of Chase’s premium cards offer excellent opportunities to stack points and rewards. I have also detailed the applicable annual fee and point earning structure.

  •  Chase Ink Plus Business – $95 (waived the 1st year) – 5x on office supply purchases, TV, phone, and internet providers (up to $50,000), 2x at Gas Station and hotel purchases (up to                        $50,000), 1x all on other purchases
  • Chase Sapphire Preferred – $95 (waived the 1st year) – 2x on dining and travel, 1x all other purchases
  • Chase Sapphire Reserved – $450 – 3x on dining and travel, $300 annual travel credit

If you are going pay a  fee for a credit card you might as well get the best bang for you buck, right? There is no point in paying $60+ on a card that’s only giving 1x on purchases.

 

Rental Car Protection

Below is a except from chase.com concerning the Chase Sapphire Preferred rental car protection:

“Decline the rental company’s collision insurance and charge the entire rental cost to your card. Coverage is primary and provides reimbursement up to the actual
cash value of the vehicle for theft and collision damage for most rental cars in the U.S. and abroad”

AvisInsurance
As you can see in this screenshot, booking a rental car and selecting their damage waiver could cost you about $30/day. Why would you purchase that when your card gives you that protection. If you rent the car for 3 days, the card’s annual fee has paid for itself considering the $95 annual fee.

Airline/Travel credit

I currently have two credit cards with high annual fees and both offer annual travel credits:

  • American Express Premier Rewards Gold  – $195
  • Chase Sapphire Reserve card – $450

The Amex Premier Rewards Gold offers you a $100 airline credit AFTER you make an airline selection and incur an eligible expense such as checked backs or in-flight refreshments. The biggest downside with this option is airline tickets DO NOT count. Bummer!!.

However, the Nerd has you covered. Gift cards purchased from the airline website directly do count. Boom!

AmexPRG

Earlier this year, I selected Southwest as my airline choice (Southwest, Delta, American Airlines,  and United are options).  Two days later, I went directly to the Southwest.com website and purchased a $100 gift card with my Amex PRG card. The gift was delivered via email within a couple of hours. Within about two weeks, I automatically received a $100 statement credit from Amex. I saved my e-gift card for a couple of months, then used it on an upcoming trip.

Nerd note: The airline credit alone ‘lowered’ the annual fee from $195 to $95, the same cost of the Chase Sapphire Preferred.

I would like to add that the $195 annual fee was waived the first year. So I got a $100 credit earlier this year, I will get it again in early 2017, all before my annual fee is charged!

Chase Sapphire Reserve

The Chase Sapphire Reserve card offers you a $300 travel credit automatically as any eligible travel purchase posts to your account. Now this is lovely. Unlike the Amex option, you don’t have to select a specific airline and airline tickets are included. Not to mention, the CSR will reward you with 3x points on all travel purchases. In theory, you can purchase a $300 plane ticket with cash, then receive the $300 travel credit making the place ticket free. Then, you will still accrue a 900 Ultimate Rewards points. #Winning.

I definitely plan on the utilizing the travel credit in the near future.

 

Global Entry or TSA Pre✔ Application Fee Statement Credit

Another valuable benefit of the Chase Sapphire Reserve card is a reimbursement of the application fees of Global Entry or TSA Pre✔  when use the card for the application process. The cost of Global Entry is a $100 and the TSA Pre✔ application fee is $85. You will receive only ONE of the credits, once every four years. If you are like me and like to travel, the ability to skip some of the long lines at airport can come in super handy.

Nerd note: The airline credit plus the Global Entry credit ‘lowered’ the annual fee from $450 to $50. Just BANANAS!!

 

Conclusion

As you can see, owning a credit card with a annual fee is not a bad idea. In my personal experience, its worth paying the annual fee if you earn enough rewards to offset most the annual fee or you utilize the perks such as the Global Entry and travel credits. Likewise, if you apply for a card with an annual fee, you always have the option of cancelling or closing your account before the next annual fee is charged.

Join the conversation below, do you own a credit card with an annual fee? What perks does the card offer? Will you be keeping your card?

 

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