And no, I’m not talking about the predicament facing the music industry right now – I’m talking about credit cards that carry annual fees.
Annual fees have long had a reputation as unnecessary and borderline unfair, at least in the eyes of the average consumer. More savvy credit card users, however, know better. The secret is that certain credit cards with annual fees are some of the very best available, and often feature the most rewarding cash back and miles opportunities on the market.
So why the grief over annual fees?
Well, some credit cards with no annual fees have really stepped up their game when it comes to cash back opportunities and zero-interest introductory periods. The gap in quality between the two types of credit cards is a lot smaller than it once was, but it’s still a fact that some consumers will have to pay a marginal annual fee to enjoy the best possible perks afforded by a particular card. Airline miles credit cards are one such category of card.
Co-branded airline credit cards almost always require an annual fee, but when you look closer you’ll understand that the annual fee is a small price to pay for the short and long-term benefits of a frequent flier credit card.
For example, credit cards like the Chase United MileagePlus® Explorer Card and the Gold Delta SkyMiles® Credit Card from American Express each offer 30,000 bonus miles after a cardholder spends a required amount within the first three months of account opening ($1,000 and $500, respectively). These bonus miles equate to an estimated value of $300 or more; meanwhile the annual fee attached to each card is just $95, and it’s waived the first year.
You don’t need to be a mathematician to realize that’s a deal, and that doesn’t even take into account ongoing miles earned for purchases, or money-saving perks attached to a card like checking your first bag for free each way. Simply put, there’s a reason an annual fee is required to carry these cards – you’re essentially paying once to save year-round. It’s basically the same business model that Costco uses.
That said, there will always be consumers who refuse to pay an annual fee, and that’s perfectly reasonable. Again, there are some excellent credit cards out there that require no annual fee. And in fact, some card issuers have gone so far as to include two versions of their card – one with an annual fee, and one without.
One such card is the Barclaycard World Arrival MasterCard. Here’s how the two versions of the card break down in the categories that really matter: bonus miles, ongoing miles and – of course – annual fees.
Annual Fee Version: 40,000 bonus miles (equal to $400 in travel according to Barclaycard) if you make $1,000 in purchases within 90 days from account opening.
No Annual Fee Version: 20,000 bonus miles (equal to $200 in travel according to Barclaycard) if you make $1,000 in purchases within 90 days from account opening.
Edge: $200 more in bonus miles for spending the same amount of money? This one’s easy – we’ll pay the annual fee.
Annual Fee Version:2x miles on ALL purchases
No Annual Fee Version: 2x miles on restaurant and dining purchases, 1 miler per dollar spent on all other purchases.
Edge: Double miles on all purchases is a rarity, plus it’s easier to keep track of. Again, we’ll pay the annual fee.
Annual Fee Version:$89, waived the first year
No Annual Fee Version: $0
Edge: The first year is a wash, and by year two you’ll have (hopefully) made up that $89 and then some with your cash back rewards. That said, it’s obviously better to pay $0 compared to $89.
Overall, this is one card whose annual fee version is clearly superior to the no annual fee version, even when you tack on that $89 fee in year two. And while it’s not always so obvious, sometimes the annual fee is worth paying, especially if you have a particular kind of credit card – like a frequent fliers credit card – in mind.
This guest post was written by Jason Bushey. Jason is a full-time personal finance blogger, and he runs the day-to-day operations for the credit card comparison website Creditnet.com.