The Benefits and Drawbacks of Having a Credit Card with an Annual Fee

by Jason Steele on March 23, 2012

When the CARD Act of 2009 became law, many opponents predicted that consumers would be forced to pay an annual fee on credit cards that had once been free. While this may have happened to a limited extent, there are still plenty of excellent rewards credit cards with no annual fees. Consumers still have the choice between paying a fee and not, but the decision isn’t nearly as simple as choosing the card with a lower fee over one without.

 Advantages of Credit Cards With Annual Fees

There are many credit cards on the market that have an annual fee that are clearly worth the price that cardholders must pay. This case is clearly demonstrable by examining nearly identical cards that are offered in a version with and without an annual fee. For example, the Capital One Venture One card comes with no annual fee while the Capital One Venture Reward Card has an annual fee of $59. The Venture One card offers 1.25 miles per dollar spent, while the Venture Rewards card offers 2 miles per dollar. Since each mile is worth one cent each as a statement credit towards any travel related expense, it is clear that cardholders who spend at least $4,000 a year are receiving enough additional returns from the Venture Rewards card to justify its greater annual fee.

Another example is the Blue Cash Everyday and Blue Cash Preferred Cards – two American Express credit cards. The Everyday version earns 3% cash back at grocery stores and 2% cash back on gasoline and at department stores, with 1% cash back on all other purchases. There is no annual fee for the Everyday version. The Preferred version offers 6% cash back at grocery stores, and 3% cash back at gas stations and department stores. Although the Preferred version has a $75 annual fee, spending a mere $50 per week at grocery stores each year will earn cardholders enough additional rewards to offset the entire annual fee.

The Drawbacks of Annual Fees

While it is possible to justify the annual fee of a particular card based on the expected rewards earned, these calculations are not scalable. When cardholders receive too many cards with annual fees, they become less likely to reach the spending levels required to justify the annual fee of each card. Furthermore, cardholders will experience diminishing returns when they receive many cards that require an annual fee.

By understanding all aspects of the annual fee equation, applicants can make the best decision as to which type of card is right for their particular needs. is an independent, advertising-supported comparison service. receives compensation from the credit card issuers whose credit card offers appear on the website. The compensation may impact the order in which they appear within listing categories. does not include the entire universe of available credit or financial offers. Our editors rate credit cards objectively based on the features the credit card offers consumers, the fees and interest rates, and how a credit card compares with other cards in its category. The Editor's Picks credit cards are the expert opinion of our editors, and not influenced by any remuneration this site receives from card issuers.
Advertising Disclosure*

Editor's Note: This content is not provided by Citi. Any opinions, analyses, reviews or recommendations expressed here are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by the Citi or any of the other companies whose products are featured in this content.

Leave a Comment

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Previous post:

Next post: