Is It Worth Paying an Annual Fee for a Credit Card?

The best things in life aren't always free, including when it comes to credit cards. Annual fees can be a pain, but there are times when it can be well worth forking over a fee in exchange for a slew of money-saving perks and benefits.

In 2020, the average annual fee for general-purpose credit card accounts was nearly $94, according to data from the Consumer Financial Protection Bureau. The cost of annual fees will vary depending on the credit card.

Let's take a look at some scenarios where the value that comes with a particular card can outweigh its cost of ownership.

» MORE: 8 credit card fees and how to avoid them

You need to build credit

There are lots of reasons why someone may have poor credit, but there's only one good motive for someone who falls in that group to choose a card with an annual fee: It's their best option.

Although there are a handful of cards without an annual fee aimed at those with thin or damaged credit files, depending on your financial history (or lack thereof), you may not qualify. Here are some examples of when it might make sense to pay for this type of card.

• You don't have a bank account: The OpenSky® Secured Visa® Credit Card charges a $35 annual fee and requires a $200 minimum opening deposit. What this card doesn't require is a bank account or a credit check, making it one of the best options for those whose profiles might not otherwise qualify them for other cards. You can find secured credit cards that don't charge annual fees, but most will check your credit, and most won't approve you if you're unbanked.

• Your credit is just fair: The Capital One QuicksilverOne Cash Rewards Credit Card is a rewards card that pays 1.5% cash back rewards. It's also available to those with fair credit, making it an accessible option for those who might not otherwise qualify for a rewards card. It comes with an annual fee of $39. If you put more than $2,600 a year on the card, you'll break even with the annual fee.

» MORE: Can't get a credit card? Try these alternative options

You want better cash-back rewards

For those who spend a lot in specific categories, it can make sense to pay a card's annual fee when the cash you'll earn back will outweigh the cost of that fee. Among the scenarios where this could be the more lucrative choice:

• Your household spends a lot on groceries: The Blue Cash Preferred® Card from American Express has an annual fee (It's a $0 intro annual fee for the first year, then $95.), so why would you opt for it over its no-annual-fee sibling, the Blue Cash Everyday® Card from American Express? Well, the Blue Cash Preferred® Card from American Express earns 6% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%.) Terms apply (see rates and fees). The Blue Cash Everyday® Card from American Express, by contrast, earns only 3% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%.) Terms apply (see rates and fees). Even with the annual fee, you'll net more overall on the Blue Cash Preferred® Card from American Express if you spend at least $61 a week on groceries. Plus, the Blue Cash Preferred® Card from American Express also earns 6% back on select U.S. streaming subscriptions and 3% back at U.S. gas stations and on transit, compared to the Blue Cash Everyday® Card from American Express' 3% back at U.S. gas stations on up to $6,000 in spending per year, as well as 3% back on U.S. online retail purchases on up to $6,000 in spending per year. Terms apply.

• You're a big spender who wants a flat-rate cash-back card: Deep-pocketed credit card users could fare better with the Alliant Cashback Visa® Signature Credit Card than with similar no-annual-fee options. The card has an annual fee of $0. But it earns 2.5%, up to $10,000 in qualifying purchases per billing cycle. After year one, if you spend more than $9,900 a year, you'll come out ahead of a flat-rate 1.5% card with no annual fee. If you spend more than $19,800 a year, you'll best a no-annual-fee 2% card.

» MORE: Annual fees? Several new credit cards are opting for monthly ones

You're eyeing travel perks or a massive sign-up bonus

Airline cards

Co-branded airline cards typically offer perks that equal or exceed the annual cost of ownership. The more you fly, the more valuable the perks will be to you. Among the scenarios that would make a co-branded airline card worth the cost:

• You fly at least once a year with a partner and check your bags: The United℠ Explorer Card offers a first bag free for you and a companion on your reservation, saving you up to $35 per bag each way, or $140 total round trip. With an annual fee of $0 for the first year, then $95, you'll easily come out ahead after just your first flight.

• You want to take a big trip every year with a companion: If your plans fit within Alaska Airlines' routes, the Alaska Airlines Visa® credit card scores you a Companion Fare each year on your account anniversary, after spending $6,000 or more the previous 12 months. This will cover a companion’s ticket on any Alaska Airlines coach flight for as little as $122 ($99, plus taxes and fees as low as $23 total). Depending on the route, this perk could save you hundreds or thousands of dollars, handily surpassing the card's annual fee of $95.

Hotel cards

Whether it's because you're partial to a particular brand or you're aiming for elite status and the perks that go with it, owning a co-branded hotel card can often be worth more than the money you pay for it. Here are some situations where that could prove true:

• You know you'll stay in a hotel at least one night a year: One of the nice things about the World of Hyatt Credit Card is that it comes with a free night award every year after your account anniversary (at a Category 1-4 Hyatt hotel). If you know you'll use it, that free night will likely equal or exceed in value the cost of the card's $95 annual fee.

• You are a frequent business traveler: You spend so much time sleeping in hotels that you have the room service menu memorized. If you're on the road this often, it can pay to have brand loyalty and a card that matches. The Hilton Honors American Express Surpass® Card delivers perks some useful perks, for a $150 annual fee. The card also grants you Gold Status, which means perks like daily food and beverage credit and other goodies. Terms apply (see rates and fees).

General travel cards

You aren't partial to any one hotel or airline, preferring to pick what suits your needs for that particular trip. There are cards that might still be worth the out-of-pocket cost to you, especially if they come with large sign-up bonuses. Among those who might find an annual fee worth paying on these kinds of cards:

• You look to rack up free travel through spending: The Capital One Venture Rewards Credit Card earns 2 miles per $1 spent on most spending. Rewards can be redeemed as a statement credit against any flight or hotel purchase. Plus, the card offers a rich sign-up bonus: Enjoy a one-time bonus of 75,000 miles once you spend $4,000 on purchases within 3 months from account opening, equal to $750 in travel. The card's annual fee is $95, but the bonus alone essentially pays for the cost of card ownership for several years. And that's without even considering the card's ongoing rewards and flexibility.

• You travel a significant amount by car, plane, cruise ship, commuter rail, etc. An annual fee of $550 may seem like an exorbitant price to pay for the privilege of owning the Chase Sapphire Reserve®, but consider the entire package. The card comes with an annual $300 travel credit, which significantly reduces the net cost of ownership. You'll also get perks like complimentary Priority Pass Select lounge membership, primary rental car coverage and a lengthy list of travel partners you can transfer your points to at a 1:1 ratio. Plus, you'll get 50% more value from your points when you redeem them for travel through Chase Ultimate Rewards®. This card, too, comes with a large sign-up bonus: Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $900 toward travel when you redeem through Chase Ultimate Rewards®. — another way the annual fee is defrayed.

Bottom line

You can find plenty of rewarding credit cards that won't charge you for the privilege of carrying them. But generally, cards that do charge annual fees offer even better benefits or perks — extras that can easily outstrip the cost of such fees. In many cases, you'll come out ahead, despite the upfront cost.

» MORE: Why Do Some Credit Cards Carry an Annual Fee?