Are Credit Cards Worth the Annual Fee?
Credit cards come in all different shapes and sizes. From cash-back to travel rewards, there’s a card with the rewards to suit every need. Regardless of the rewards offered, credit cards generally fall into two categories: cards with no annual fee, and cards with an annual fee. Choosing a card that best aligns with your spending habits is important to maximize rewards, but when it comes to paying a credit card’s annual fee, is the juice worth the squeeze?
Choosing a no annual fee credit card
Rather than paying an annual fee up front, consumers can choose from a wide selection of no-fee credit cards. For many, no-fee credit cards are an obvious choice; they provide the same convenient access to credit as those with annual fees. These types of cards best suit savvy consumers whose frugal spending would not collect enough rewards to offset an annual fee. These cards also serve as a good alternative in the event of unexpected emergencies.
Not all no-fee credit cards are created equal; some offer perks in line with their more expensive relatives. For example, the Tangerine Money-Back Credit Card is one of the best cash-back credit cards in Canada. It offers consumers 2% money-back rewards on purchases in select categories along with 1% money back on all other purchases. Cash back is paid out monthly and can be applied to pay off the credit card balance or redeemed into a Tangerine Savings account.
In some ways, the Tangerine card punches above its weight class. There are no limits to the amount of cash back that can be earned and the extended warranty benefit can add up to a year of repair services after an original warranty expires.
When to pay an annual credit card fee
While a credit card without an annual fee is an attractive offer, it does make sense in some situations to pay an annual fee for added benefits. Credit cards with annual fees typically result in more attractive rewards and provide features that can include travel and medical insurance, price protection, and concierge services.
These types of cards best suit consumers who make all their purchases, whether large or small, with credit. This includes every day purchases such as bills, groceries, and gas. Keep in mind annual fee credit cards only make sense if you spend enough to earn rewards in excess of the annual fee. For example, a credit card with a 2% reward and a $120 annual fee would require a yearly spend of $6,000 to break even and justify the cost of the benefits.
For an annual fee of $150, the BMO World Elite MasterCard provides consumers the opportunity to collect 2 points per dollar spent to redeem against flight charges—including taxes. This can be applied to flights from any airline with no restrictions, such as blackout dates. Cardholders are covered by travel and medical insurance on an unlimited number of trips per year and can enjoy the comforts of VIP airport lounge access. The card can make sense for frequent flyers as the value of lounge access itself adds up to over $200.
The bottom line
Are credit cards worth their annual fee? Well, it depends. Credit cards with annual fees make sense for spenders who can use their buying power to cover the yearly cost and generate more rewards. Cardholders who don’t make as many purchases with credit can take advantage of the perks offered by a no-fee credit card. In either case, rewards are not worth it if a monthly balance sits unpaid, accruing interest. As is the guiding principle with all credit cards, pay off the balance each month if you can.
You may also be interested in: 5 Ways to Maximize Credit Card Rewards
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