Credit Card Annual Fees: Are They Worth It? Insider Tips for Making the Right Call
Credit card annual fees can suck. Once a new card has been open for 12 months, you must decide whether it has enough value to keep it open and continue paying the annual fee. Sometimes, this can be a tricky decision. This post will discuss some Pro-tips to help you make the right decision.
Here are some easy things to consider.
- Does the card have unused points that are connected to this card only? If so, are the points worth keeping the card open? Remember some ecosystems like Chase, Amex, Citi, and Capital One. Their points sit in a pool that can be accessed or transferred from card to card. If you have one of their other cards open, the points will stay active and available.
- Is there an annual fee? If not, don't worry about it. Use the card occasionally, or the card company may close the account due to inactivity. You shouldn't close a card if you don't need to because the more open available credit you have, the better your credit score will be.
- Does the card have benefits or coupons that outweigh the annual fee? For example, flight credits, hotel credits, travel credits, Clear credits, TSA precheck or Global entry credits, UBER or Lyft credits, ETC.
- Consider the spending multipliers and whether your annual spending will bring you more value in points than the annual fee. To determine this, we value points at around 1 cent per point. Most of the time, points will be more valuable than 1 cent per point, but we always use a lower value to make sure that it makes sense to keep a card.
We determine value by examining benefits and deciding whether we would normally pay out of pocket for them. If so, they are valuable to us.
Once you have considered all these things, you can determine whether to keep the card open. If you aren't sure or are confused about how to break a card's value down, here is an example we just recently needed to do.
Our American Express Delta Reserve credit card annual fee just posted in March. This card has a yearly fee of $650, which is a lot of money for a credit card. But before freaking out about the annual fee and closing the card, we broke the card benefits down and determined if it made sense for us to keep the card open. Pro-Tip: Please remember that value isn't the same for everyone; we only count benefits we know we will use throughout the year towards value. Never calculate a benefit you're not sure you will use.
In this instance, I was sure we would close this card before looking at the card's value. We have chased Platinum Status with Delta in the past because of its great benefits. Minneapolis airport is a major Delta hub; we fly them 90% of the time and enjoy Priority check-in lines, free bags, and an instant upgrade to Delta comfort after booking main cabin fares.
Unfortunately, Delta significantly changed its SkyMiles program at the beginning of this year. It now solely relies on credit card spending. But Delta's points aren't great regarding value, so we only spend money on this card if we're trying to hit something specific. In our opinion, none of the Delta co-branded cards are daily users.
After looking through all the benefits of the card, we considered these benefits valuable to us.
- $10 monthly rideshare credit. We will use this at least six times per year. (Value to us $60)
- Companion certificate. (Value to us at least $300)
- $200 Delta stays credit. (Value to us at least $150)
- Free first checked bag. (Value to us at least one flight a year $90)
After reviewing all the benefits and coupons, our total yearly value is $600. This card has many other benefits and coupons, but we don't consider them valuable because we wouldn't pay out of pocket for them.
After considering everything, we decided to close the card because it costs us $650 annually, and we only receive $600 worth of value.
Before calling to close the card, we decided to see if we could get a retention offer from Amex. Most of the time, credit card companies are willing to offer you something to keep your card open. The only way to make money off of you is if you keep the card open and use it. This is called a retention offer, which is usually a statement credit or something similar to a sign-up bonus. For example, spend “X” amount of money in “X” amount of time and receive “X” amount of points.
So we called Amex and told the representative that we were considering closing the card because we don't use it much anymore, and the value doesn't outweigh the annual fee. The representative went through all of the card's benefits. After doing that, we told them we were still considering closing the card.
At that point, we asked if there was something they were willing to offer us to keep it open. The rep said yes; how about a $300 statement credit after spending $3000 in 3 months? This is a great offer, but points are more valuable to us than dollars. So, I asked if there were any points they were willing to offer. After checking, the rep said yes; how about 60k points after spending $3000 in 3 months?
Wait, What???
I couldn't believe what I had heard, so I asked him to repeat the offer. 60k points on the low end of 1 cent per point are worth $600. Our original value was $600 for the benefits and coupons, plus an additional $600 from Amex. Now, the card was worth $1200 this year, so we accepted that offer from Amex. We will be keeping this card for another year.
A quick note on retention offers: Credit card companies typically only offer you something to keep the card open every few years. So, we keep track of when we received the last retention offer on each card with a spreadsheet. We have had multiple years where one of the major card companies has offered us retention offers on numerous cards. Pro-tip: Always ask for a retention offer. In the worst-case scenario, the rep tells you no. Best-case, you receive something.
As long as you follow these tips and tricks, you will generally make the right decision.
