To Fee, Or Not To Fee. Is Your Credit Card's Annual Fee Worth It?

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Last updated on October 29, 2021

With juicy rewards, hefty perks and insurance coverages that can make brokers blush, some credit card annual fees can be worth their weight in gold. However, for many, if you’re not spending big or travelling frequently, you could find yourself on the wrong side of the bottom line.

Think about it this way. If the average annual fee for a premium credit card is $120, and you’re earning 2% in rewards, your first $6,000 in credit card spend would go towards paying your annual fee – just to break even.

If you’re trying to figure out if you’re annual fee credit card is worth it’s salt, here’s a roadmap.

Annual Fee Makes Sense

 1. When the insurance benefits outweigh the fee – and aren’t available on a no-fee card

Credit cards can be one of the most effective ways to get high quality, free travel insurance. For the small price of $120, you could be covered for travel medical, trip cancellation, trip interruption, flight delay, lost/delayed luggage, car rental, extended warranty, purchase protection (loss or theft within 90 days), and price protection (pay the difference of a price drop within 60 days).

Travel medical and trip cancellation alone can be worth $120. Car rental insurance can cost $30 a day. So even if you don’t plan on spending huge sums on your credit card, if you plan on using the included insurance coverages, you could be saving well over $500 a year.

2. When the perks outweigh the fee

So your travel credit card has an annual fee, but you really prefer using your no fee cash back card for most of your everyday purchases. Does it still make sense to keep your annual fee card if you’re not going to spend big on it?

In many cases the answer is yes. For example, if you get a $120 companion airline ticket to anywhere in North America every year, a free hotel night anniversary bonus, use the 4 free airport lounge access passes, get complimetary roadside assistance, or jump to elite hotel status giving you free internet and business lounge access, it pays to keep the card.

3. When you spend big, and take advantage of the higher earn rate

Let’s say you have the Scotia Momentum Infinite Visa card, which has a $99 annual fee (waived in the first year), but gets you 4% cash back at gas stations and grocery stores. If you spend $50 a week at the pump and $200 a week on groceries, you’ll earn $520 cash back a year. If we net out the annual fee of $99, you’ll get $421 in net cash back earnings per year or a 3.2% earn rate! Phenominal value.

You can see from the example above that your spend level and the credit card’s earn rate easily cover the cost of the annual fee. There is no Canadian no annual fee credit card that offers comparable value, even when you net out the annual fee.

Annual Fee is a Dog’s Breakfast

1. When you don’t use the benefits

You can have all the travel insurance in the world, but if you don’t travel, or you’re not eligible to be covered (e.g. you’re 70 years old and the travel medical coverage only extends till 65), there’s no value for you.

2. When you can get the benefits you want from a no-fee card

Benefits like car rental insurance, extended warranty, purchase protection and even trip interruption are offered on many, if not most, no-fee credit cards. If that’s all you’re looking for, get it for free.

3. When you’re carrying a credit card balance

If you’re carrying a credit card balance on a credit card with a large annual fee, you’re likely far better off with a low interest option like a low rate card or a low balance transfer credit card.

Most credit cards with large annual fees, are intended to be rewards credit cards and come with steep interest rates of 19.9% and above.  Even if you’re earning 2% in rewards for every $1 in credit card spend, you’re still being charged 19.9% in interest annually – you do the math.

Concluding Remarks

To help you determine the best credit card Canada has for you, use our credit card comparison tool. It tells you how much you’ll earn from each credit card, after the annual fee has been netted out of your annual rewards.

If you’ve come to the conclusion that your credit card isn’t worth the annual fee, you can do one of 3 things: cancel it, convert it, or throw a hail mary and ask your issuer to waive the annual fee, maybe they’ll bite.

While credit cards with annual fees should always come laden with a rich earn rate, rewards you enjoy redeeming for, rewards that are easy to redeem when you want to, and valuable perks and benefits, that’s not always the case. Don’t be afraid to switch to a card that suits your needs better. You can always try an annual fee card with a first year fee waiver, to see if it suits your needs better.

Author Bio

GreedyRates is Canada’s go-to resource for all things personal finance. Our expert articles and videos cover every topic under the financial sun, including credit cards, credit scores, loans, bank accounts, budgeting, investing, RSPs, TFSAs, GICs, taxes, and more. Want our advice on a personal finance issue? Send us an email at [email protected] and we’ll gladly give you some free tips.

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