While browsing for credit cards, you’ve probably noticed that cards with top-tier benefits may come with an annual fee. These fees, which are paid to keep the account open, run from about $75 to $450…
While browsing for credit cards, you’ve probably noticed that cards with top-tier benefits may come with an annual fee. These fees, which are paid to keep the account open, run from about $75 to $450 or higher. That may give you sticker shock, but keep in mind these cards offer perks — like cushy airport lounge access, elite airline and hotel status, travel credits and additional insurance — that may outweigh the cost of the fee. Here’s how to make sure a credit card’s perks are worth the annual fee.
Valuable Credit Card Perks
Understanding what perks your card offers, and what rules you need to follow to use them, will ensure you get the maximum value. While no two cards are exactly alike, here are some benefits you might receive:
Travel credits reimburse cardholders for making travel purchases, such as airline tickets, hotel stays and even rides on ride-hailing services. These come in the form of statement credits.
Lounge access allows cardholders entrance to lounges in airports. Typically, they offer complimentary drinks, food and Wi-Fi.
Flight services may be offered on cobranded airline credit cards, and they may include priority flight boarding, free checked bags and in-flight discounts.
Global Entry or TSA PreCheck credits reimburse cardholders when they apply for these programs, which expedite the security process for preapproved travelers.
Shopping protections cover the purchases you make, usually up to a certain amount. They may include an extension to a manufacturer’s warranty, reimbursement for a damaged or stolen item, a refund on the price difference on a purchase, or a refund if you’re dissatisfied with a product or service.
Insurance can reimburse you if you file a claim after certain covered incidents. A credit card might offer coverage for a lost or damaged cellphone, a canceled or interrupted trip, lost or delayed luggage, or car rentals.
Elite status grants cardholders special benefits, such as upgraded airline seats or hotel rooms.
Factors to Consider
Before signing up for a card based on its benefits, make sure it’s a good fit for you. Consider these factors:
Which perks will you use? Your card may offer a treasure trove of perks, but take a close look at them. “I would definitely encourage folks to consider not only what are the perks that are offered, but what are the perks they are likely to use?” says Justin Zeidman, manager of credit card products for Navy Federal Credit Union.
Some perks are easy to quantify. For example, a $300 travel credit has a clear cash value. But others, such as free concierge services, don’t have a set value. Chelsea Hudson, senior public relations officer and personal finance expert at rebates website TopCashback.com, says in those cases, think about what the perk adds to your experience. Then ask yourself how much you would spend if you didn’t have the perk.
But it can be tough to anticipate what benefits you’ll use. “It’s not until you actually need them that you start to scramble and say to yourself, ‘How much is this now going to cost me out of pocket?’ You can lose hundreds of dollars just from something as simple as a flight delay or cancellation,” Hudson says.
Hudson experienced a travel delay in Greece last year, but she was able to use her credit card’s travel insurance and was reimbursed $700 for a hotel stay. “In this case,” she says, “the annual fee was worth it to me.”
What’s the annual percentage rate? If you know you’ll regularly carry a balance, the interest charged may outweigh the value of your card’s benefits. For example, if you take 12 months to pay off a $2,000 balance on a card with an APR of 24.99 percent, you’ll pay about $280 in interest.
What are the fees? Compare the annual fee to the value of the perks you’ll use. And if you know you’ll need to transfer balances to the card and use it abroad, consider the foreign transaction and balance transfer fees, which may reduce some of the card’s value.
It’s fairly easy to tell whether a credit card’s built-in perks make the annual fee worth it: Calculate the value of the card’s benefits against the fee to see if you’ll get back more than what you pay to use the card. Here are two examples:
$300 annual travel credit (after spending $300 on travel)
Automatically applied to the first travel purchases you make each card member year. Let’s say you meet the spending requirement.
Statement credit every four years for either Global Entry or TSA PreCheck
Worth $100 for Global Entry or $85 for TSA PreCheck.
Priority Pass Select lounge access for you and up to two guests
Typically worth $32 per visit. Let’s say you visit a lounge six times during the year. $32 x 6 = $192
In this example, the card is worth $592 based on the benefits you use.
This card’s benefits focus largely on purchase protection and travel. If you take multiple trips a year and shop often, the perks can help you get your money’s worth. In one year, you may use only some, but not all, of the benefits, like purchase protection and Priority Pass Select airport lounges. In another year, you may use a different combination of the perks and get a different value.
To get maximum value from these benefits, make sure you follow the requirements. One of the most important caveats: You’ll need to charge the costs to the card to use benefits. For example, if you submit a travel insurance claim to cover a canceled flight, the flight would need to have been charged to the card. You’ll also need to work with the card’s affiliates to submit claims, and there are specific time limits and documentation requirements you’ll need to follow.
Annual fee: $0 for the first year and $99 thereafter
How It’s Used
First checked bag free on domestic American Airlines itineraries
Let’s say you check a bag on four round-trip domestic flights annually, and each checked bag is worth $30. $30 per bag x 8 flights (round trip) = $240
25 percent savings on in-flight food and beverage purchases on American Airlines flights
Let’s say you purchase two $10 items on each of your eight flights. $20 x 8 items = $160 $160 x 25 percent savings = $40 savings
$100 American Airlines flight discount (after spending $20,000 throughout the year)
You can use this discount each year after meeting the spending requirement and paying the annual fee.
In this example, the card is worth $380 based on the benefits you use.
This card also offers travel perks, but they’re specific to one airline. That makes it a good fit for people who can stay loyal to the brand. The value of the perks may be less than that of the Chase Sapphire Reserve, but the annual fee on this card is much lower. The Citi / AAdvantage Platinum Select World Elite Mastercard charges $99 starting in the second year compared with the Chase Sapphire Reserve, which charges an annual $450 from the start.
Think about your spending habits. Do they fit the requirements to use the perks? For example, to earn the $100 flight discount, you’ll need to spend $20,000 total throughout the year. That’s a high spending requirement for the return, but if it fits into your budget, you’ll come out ahead. Another perk is free checked bags. But if you never check a bag, then the perk won’t be worth it to you.
Some of the perks don’t have a straightforward value. For example, the Citi Private Pass provides special access to purchase tickets, and Citi Concierge provides access to customer service agents who can help you book travel and more around the clock. These services can help you get into hard-to-access events or help you save time — both of which might be valuable to you.
The best cards offer benefits that offset their annual fee. The catch is, you have to regularly use those perks to make the fee worthwhile. Consider your lifestyle and spending habits. For example, if you’re not an avid traveler or shopper, then a card that offers extensive travel and shopping benefits won’t make sense for you.
“At the end of the day, if you are going to be paying an annual fee for a card,” Zeidman says, “then picking a card that rewards you richly for the way you spend is going to be a great place to start.”