Are Higher Annual Fees Better?
What a strange question. How could a higher annual fee possibly be better than a lower one? To understand how that can be the case, you must look at the totality of your credit card’s benefits and its fees. Here are two instances where a company is offering nearly identical credit cards, one with an annual fee and one without. In both cases, I would have to recommend the card with the more expensive annual fee to anyone who uses this card even occasionally.
Southwest Rapid Rewards Cards From Chase
Chase and Southwest Airlines offer two cards, the Classic card and the Premier card. Both accrue identical benefits in Southwest’s Rapid Rewards programs. What’s the difference? The Classic card has a $69 annual fee and the Premier card has a $99 annual fee. Both waive their fees the first year so you only pay the annual fee on the second year. When you pay the $69 annual fee for the Classic card, you receive 3,000 Rapid Rewards points worth $50 towards a Southwest Airlines purchase. Essentially, you are paying a net $19 to renew. The Premier card offers 6,000 miles, worth $100 towards a Southwest Airlines flight. With the Premier card, you end up ahead by $1.
If that wasn’t enough, the Premier card allows you to earn Tier Qualifying points so that you can reach higher status levels in their program. Even if I didn’t card about this benefit, I would much rather pay $99 to earn $100 than $69 to earn $50. Wouldn’t you?
Capital One Venture Card Vs. VentureOne Rewards
Capital One offers two very similar cards in its new Venture series. The standard Venture rewards card has a $59 annual fee while the VentureOne card has no annual fee. The other difference is that the Venture card offers 2 “miles” per dollar spent while the VentureOne card only gives you 1.25 “miles” per dollar. Since each “mile” in their system is worth one cent towards a statement credit on any travel expense, you are earning .75 cents more per dollar spent with the higher annual fee card. If you spend $4,720 dollars a year or more, you will save money with the standard card over the fee free Venture One.
Lessons Learned
People simply don’t like annual fees and that is understandable. Credit cards make plenty of money off of us from interest rates and merchant fees, they don’t have to charge us just for the privilege of merely using that card. At the same time, credit card rewards are not always a straightforward proposition. As I have shown, there are all sorts of ways that a rewards credit card can offer direct value to its cardholders. Other examples I have run across recently are the Chase Sapphire and Sapphire Preferred cards. There are several benefits offered by the Sapphire Preferred that exceed the standard card such as higher reward rates and waived foreign transaction fees. This may also be a case where some people are better off with the Preferred card, even with it’s higher annual fee. Another instance may be the American Express Platinum card. Although its $450 annual fee is high, and there is no directly related card that offers similar benefits without the fee, you can still make a case that their fee is worth it. You will get a $200 airline travel fee credit and $100 towards the Global Entry membership. Those two can account for most of the fee, and it has plenty of other benefits that could account for rest. If the added benefits vastly exceed the additional annual fee, it can make much more sense to apply for the card with the higher annual fee.
