Is your credit card annual fee worth it?

credit card annual feeFree money from your credit card company can never be a bad thing as long as you’re staying on top of your payments – can it? For the most part, no. As long as you’re paying your bills on time and in full, earning more rewards is usually a good thing. However, if you’re paying an annual fee on your card, your rewards earnings may not be worth as much they seem.

That pesky charge can be easy to forget until you see it on your statement, especially when credit cards waive the annual fee in your first year,. If you have one, evaluating your credit card annual fee should be a key part of your decision to choose one credit card over another. Follow this step by step guide to decide whether your annual fee is worth it, or not.

Step 1: Do you have a credit card annual fee?

The first step to this equation is figuring out if you have a credit card annual fee, and if so, how much it is. If you’ve already been approved for the card, you’ll need to check out the terms of your credit card online.

Reach out to your bank’s customer service department if you can’t find the info. For those whose card is always fee-free, congrats! If your card has a fee, read on – we’ve got some tips for you.

Step 2: If you do have a fee, negotiate  

Have an annual fee for your credit card? Don’t despair – first, try negotiating. The fee may not seem negotiable, but in an industry this competitive, many companies will waive or partially refund fees.

First, give your credit card company call and ask if the fee can be waived. In many cases, this will actually work. Mention that you’re considering cancelling the card because of the fee if not, and you may be forwarded on to a department even more likely to waive your fee, or refund you with additional rewards. Find out more about negotiating your fee here.

If your credit card company won’t waive the annual fee, ask if they have a free version of the same card with lower rewards. Having this information will be helpful later, as you might decide it’s a better fit.

Step 3: Get out your calculator (or your favorite calculator app)!

So, your bank won’t waive or refund your annual fee. It’s time to crunch some numbers. Find out if your annual fee is actually worth the cost by comparing your expected rewards earnings to the annual fee, using the following steps:

  1. Using your budget, figure out how much rewards-eligible spending you plan to do on your card over the course of the year. With a weekly or monthly budget, you’ll need to expand your planned spending over the course of the year. Check what types of purchases earn you rewards with your credit card.
  2. Multiply your planned spending volume by your card’s rewards earning rate. This shows how many dollars worth of cash back or travel rewards you’ll get throughout the year.
  3. If your card gives you travel rewards (or other, non-cash back rewards), make sure that you’ll actually spend enough on rewards-eligible purchases on the card throughout the year. Determine this by checking your budget, and seeing how much you plan to spend on travel (or the relevant budget category) throughout the year. This will help make sure that you’ll be able to cash in on the full amount of rewards you earn.

Example:

You’re considering a card that earns you 1.5 travel rewards points/$1 spent anywhere. Your budget says that, outside of rent and other bills you can’t use a credit card for, you’ll spend $200/week.

$200/week * 52 weeks/year = $10,400 rewards eligible spending / year

$10,400/year * 1.5 points = 15,600 points per year

15,600 points * $1 travel statement credit/100 points = $156 statement credit

As long as you spend more than $156 on travel (this usually includes flights, public transportation, cabs and ridesharing apps, etc.) and your credit card annual fee is less than $156, this credit card could be good choice for you!

Step 4: Make a decision

Use that info to decide whether or not your annual fee is worth it. Compare the dollar value of rewards you’ll earn (and use) annually to the annual fee. If your anticipated usable rewards earnings are higher than the annual fee, and there aren’t any similar, fee-free cards you could apply for instead, go for it! 

However, if this is your first-ever credit card, reconsider the annual fee calculations. The length of your credit history is an important part of your credit score, so you’ll want to leave your oldest card open indefinitely. Even if the rewards are worth the fee today, they might not be in 5 years. Then, you’ll have to choose between canceling the card and hurting your credit or paying for a rewards card that’s no longer worth it.

If the anticipated rewards are not higher than the annual fee, and you haven’t committed to the card yet, keep shopping around. If you’re already using the card, consider closing the card, keeping in mind that closing a card does temporarily knock your credit score. You could also consider putting more of your rewards-eligible spending on that card, instead of another card with no or lower fees.


Credit card rewards can be a big money saver, but don’t take high rewards earning percentages at face value. Make sure to check for a credit card annual fee, and if you have one that your bank won’t waive, stick to these steps to determine whether or not that annual fee is worth it.

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