A comprehensive overview of credit card annual fees

As someone who writes about points, miles, and credit cards, I often find myself discussing annual fees with friends and family.

I’ve been surprised to learn how many people shy away from — or even entirely dismiss — credit cards that come with annual fees. Many have expressed sentiments like, "Why should I pay for a credit card when there are plenty of options without fees?" or "The cost of an annual fee isn’t justified for me."

While it’s true that no one enjoys shelling out for credit card annual fees, these fees can sometimes lead to rewards and benefits that make them worthwhile. Today, I’ll explore different factors related to credit card annual fees, particularly when it might be advantageous to incur one.

What exactly is a credit card annual fee?

An annual fee is a charge imposed by the credit card issuer that you are required to pay each year to keep your card active.

The specific fee amount varies based on the card's benefits and rewards. Generally, these fees start at about $50 and can reach up to nearly $700 for premium cards.

When is the credit card annual fee due?

Typically, you'll see your credit card's annual fee on your first monthly statement after you become a cardholder. In the following years, the issuer will charge this fee around the time of your account anniversary, which aligns with when you initially opened the card.

Keep in mind that some cards provide a waiver for the annual fee during your first year. This will be clearly indicated during the application process. For these cards, the annual fee will apply on each anniversary of your account, but you'll enjoy the first year's benefits and rewards at no cost.

Is it possible to have the credit card annual fee waived?

As previously mentioned, certain cards do not charge an annual fee for the first year. Some issuers may also offer reduced annual fees or bonuses to valuable banking or investment customers. Additionally, select credit cards may have waived annual fees for active-duty military personnel.

Generally, you should anticipate paying the full annual fee each year unless you qualify for a waiver or a reduced fee. However, if a card has diminished benefits in the previous year or you've encountered specific issues with your account, you can contact the number on the back of your card or use your issuer's secure messaging feature to raise your concerns when the annual fee is charged.

The representative might be able to provide you with a retention offer (often in the form of a lower annual fee, bonus rewards, or a spending challenge) that makes it more enticing to keep the card despite the annual fee.

Which types of cards typically incur annual fees?

There are two main categories of credit cards that usually charge annual fees: starter cards aimed at consumers with limited or poor credit and travel rewards cards that come with various perks and benefits.

If you have limited or poor credit, you may need to pay an annual fee to obtain a secured card and build your credit. On the other hand, rewards cards often charge an annual fee but provide benefits, statement credits, and other perks that may exceed the cost of the fee for some cardholders.

When is it beneficial to pay a credit card annual fee?

To accumulate valuable points

In general, credit cards without annual fees often lack the earning potential found in cards that do charge an annual fee. There are three primary reasons for this:

Sign-up bonuses: Most no-annual-fee cards tend to offer less enticing sign-up bonuses compared to their annual-fee counterparts. For instance, the no-annual-fee Ink Business Cash® Credit Card provides up to $750 cash back: $350 bonus cash back after you spend $3,000 within the first three months, plus an additional $400 after spending $6,000 in the first six months. In contrast, the $95-annual-fee Ink Business Preferred® Credit Card offers a significantly more valuable 90,000 bonus Chase Ultimate Rewards points after spending $8,000 in the first three months from account opening.

Earning rates: Many no-annual-fee cards do not earn points at the same rate as those with an annual fee. For example, the no-annual-fee Capital One VentureOne Rewards Credit Card offers 1.25 miles per dollar spent (see rates and fees), whereas the $95-annual-fee Capital One Venture Rewards Credit Card allows you to earn 2 miles per dollar spent (see rates and fees).

Type of points: In some instances, issuers may limit your ability to earn the most valuable rewards on cards that don’t charge an annual fee. For example, the no-annual-fee Chase Freedom Flex® and Chase Freedom Unlimited® only provide cash-back rewards — unless you also hold a card that earns Chase Ultimate Rewards points, like the Chase Sapphire Reserve®, Chase Sapphire Preferred® Card, or Ink Business Preferred® Credit Card (all of which come with an annual fee).

To access annual credits, bonuses, or complimentary nights

These benefits can often offset most (if not all) of the annual fee for the card. Here are a few examples:

• Marriott Bonvoy Boundless® Credit Card ($95 annual fee): Offers one free night award annually after your account anniversary, redeemable for a one-night stay at a property valued up to 35,000 points.
• Hilton Honors American Express Aspire Card ($550 annual fee): Provides an annual statement credit of up to $400 for Hilton resorts, up to a $200 airline fee credit each year, and one free night reward upon account opening and every year upon renewal, with enrollment for select benefits required.
• Southwest Rapid Rewards® Premier Credit Card ($99 annual fee): Grants 6,000 points each year on your cardmember anniversary.

The information regarding the Hilton Aspire and Southwest Rapid Rewards Premier has been independently sourced by Dinogo. The card details presented on this page have not been evaluated or supplied by the card issuer.

To unlock benefits

Many premium credit cards that charge an annual fee offer a range of benefits that can be extremely valuable throughout the year. For instance, certain airline credit cards provide a free checked bag, and some cards come with shopping protections that enhance your security, such as the extended warranty protection available with the Chase Sapphire Preferred Card.

Several travel rewards cards, including The Platinum Card® from American Express, Capital One Venture X Rewards Credit Card, and Chase Sapphire Reserve, excel with premium benefits like lounge access and travel protections. Depending on your individual circumstances, having one of these cards can easily justify the associated annual fee.

What are some of the top credit cards that come with no annual fee?

Everyone should obtain (and maintain) at least one credit card that has no annual fee. This recommendation stands even if you already possess multiple cards with annual fees. There are numerous no-annual-fee credit cards, but here are some of our top picks:

• Citi Double Cash® Card: Ideal for everyday purchases (see rates and fees)
• Chase Freedom Unlimited®: Best for versatile cash rewards
• Chase Freedom Flex®: Great for rotating bonus categories
• Capital One Savor Cash Rewards Credit Card: Best for dining and entertainment (see rates and fees)
• Capital One VentureOne Rewards Credit Card: Best for airline transfer partners (see rates and fees)
• Capital One Quicksilver Cash Rewards Credit Card: Excellent for beginners in cash back (see rates and fees)
• Bank of America® Travel Rewards credit card: Best for current Bank of America clients
• Bank of America® Customized Cash Rewards credit card: Best for a customizable rewards framework
• Citi Rewards+® Card: Best for small purchases (see rates and fees)

Since there are no costs associated with maintaining these cards, you can keep them open for the long haul — and this practice can enhance your credit history length, potentially benefiting your credit score.

Should I opt for the no-annual-fee version of a card?

Certain travel rewards credit cards are available in multiple variants, often with one option that has no annual fee. To determine if it’s worthwhile to choose a version with an annual fee, consider the following aspects:

• Value of the sign-up bonuses
• Earning rates
• Redemption options and their value
• Value of benefits unique to one card, such as airport lounge access and a credit for Global Entry or TSA PreCheck application fees

You might discover that the extra perks and superior earning rates make the annual fee worthwhile. The difference in sign-up bonuses could also simplify your decision. Typically, the card with the annual fee provides a more generous sign-up bonus, which may justify your choice.

If, after the first year, you find it hard to justify the annual fee, you can often downgrade to the no-annual-fee version.

Final thoughts

While paying an annual fee for a credit card might initially appear to be a bad deal, it can prove beneficial in the right scenarios. These cards can unlock valuable earning potential, perks, and other advantages. Be sure to do the math and assess your travel objectives and spending habits to determine if paying an annual fee makes financial sense.

For Capital One products mentioned on this page, some benefits may be provided by Visa® or Mastercard® and can vary by product. Refer to the respective Guide to Benefits for more information, as terms and exclusions may apply.