There are so many credit cards available today, and that makes it confusing to decide which make sense for you. We’re going to look at just one angle. . . annual fees. . .and try to help you analyze the value you receive for that fee.
From our viewpoint, annual fees only make sense if you are able to consistently justify their value year after year. If you’re paying a fee and receiving nothing in return except the ability to earn points or miles with that card, it’s probably not worth it. Look for a card that offers significant, ongoing value that offsets most or all of the annual fee that you will pay. Sometimes that value is easy to measure; other times the value is based on how you assess it for your own unique situation.
There are plenty of cards that charge no annual fees, and they’re usually pretty easy to obtain. They typically do not offer much in the way of benefits, but some of them do give users the ability to earn points or miles and receive a sign-up bonus. The rest of the credit card universe generally falls into two categories: Low fee cards, charging $100 or less annually, and premium cards, which charge more than $100 annually. Many cards come in each “flavor”, so you can compare them before making your selection.
First, we’ll look at hotel loyalty program cards. For low fee cards, this is usually a pretty simple calculation, because the benefits are limited. You usually get a free night in a low to medium tier hotel each year for the $50-$100 annual fee. We like that trade off, as it’s pretty hard to find a room at that level for less than $100. If you don’t think you would use that one night per year, don’t sign up for that card. We think the best of these is the IHG Rewards Club Premier from Chase, which carries an $89 annual fee, waived for the first year. The card gives you one free night (starting in year two) at a low to medium tier hotel (40,000 points or less) and a $100 credit against Global Entry or TSA Precheck fees every four years, along with platinum status. Add in no foreign transaction fees, up to 25X points for every dollar you spend at IHG properties and a current 140,000 point sign up bonus, and this is a terrific value for a low fee card, IF you stay one or more nights per year at their properties, which include InterContinental Hotels, Kimpton, Regent, Crowne Plaza, Holiday Inn and Holiday Inn Express. The key here is picking the card that matches up with the hotel group or groups that you frequent the most.
Only Hilton and Marriott offer what we consider to be premium cards connected to their loyalty programs. Each of these cards offer benefits that we consider to be soft value, meaning that each of you will attach a different value to them depending on what’s of value to you. Here’s our analysis of benefits on the hard value items:
Hilton Honors Aspire (American Express). . .$450 annual fee. Hard value benefits: One weekend night reward (starting in year two), valued at $200; $250 credit per year in on site purchases at Hilton properties (meals, spa, gift shop, etc.); $250 credit for incidental fees like baggage, seat upgrades, etc. at the airline of your choice; unlimited Priority Pass access; Diamond status. If you’re a Hilton user and you fly more than a couple of times a year, this card is a no brainer. In year one, you can easily get $500 in credits; $700 per year starting in year two.
Marriott Bonvoy Brilliant (American Express). . .$450 annual fee. Hard value benefits: One free night reward (starting in year two), valued at $200; $300 credit per year for any Marriott charges including room charges; $100 credit against Global Entry or TSA Precheck fees every four years; unlimited Priority Pass access; Gold status. Again, if you’re a Marriott user, this card makes sense, with $400 in credits in year one and at least $500 per year starting in year two.
In each of these cases, we feel that the premium card value outweighs the value of the low fee alternative. In addition to the hard value benefits mentioned above, you’ll get better points earning multiples, better status and (usually) a stronger sign-up bonus for the premium card.
Now, let’s tackle airline loyalty cards. The low fee cards basically give you one free checked bag per flight and some sort of priority boarding. If you fly that airline at least twice per year (that’s two round trips), your checked bag fee savings should be at least $100. They’re all pretty similar, and worthy of your consideration if you fly a couple of times or more per year on a particular airline (or airlines!).
The outliers in this category are the Southwest Rapid Rewards cards, all issued by Chase. There are three “flavors” of cards (plus a Business card, but that category will be the subject of a future post): the Plus (no annual fee); the Premier ($99 annual fee); and the Priority ($149 annual fee). Since “your bags fly free” on Southwest, there’s no gain on the play for free checked bags. But there is a huge benefit available if you fly Southwest frequently with someone else. It’s called a Companion Pass, and you can earn it by committing to a fairly large spend (minimum of $12,000) on a couple of their cards, which would meet the 125,000 point requirement. That Companion Pass allows your pre-defined Companion to fly free with you on any flight with an open seat at the time you book. It’s good for the year in which you earn it and the following calendar year, which means you could save thousands of dollars over a 13-24 month period if you’re a frequent Southwest passenger. Here’s how you could make this happen now, based on their current sign-up bonuses of 50,000-80,000 points:
- Apply for one of the three Rapid Rewards cards by February 8, 2021. We recommend the $149 Priority card, which gives you a $75 annual credit for all Southwest charges, bringing the net cost down to $74.
- Charge $10,000 on the card as soon as possible; this will give you the sign-up bonus of 80,000 points plus another 10,000 points for that $10k you just spent.
- Ninety days later, apply for the Plus card and meet their spending requirement for the sign-up bonus in effect at that time, probably 30,000 to 40,000 points. That should give you more than enough points to qualify for the Companion pass! Of course, there’s a fair amount of detail you should know. . .check out this article on The Points Guy: https://thepointsguy.com/guide/earn-southwest-companion-pass-new-year/.
Each of the major US airlines also offers a premium card. In addition to an expanded free checked bag policy including others in your group, these cards typically offer access to that airline’s club lounges, enhanced status, priority status and preferred boarding, as well as a path to even higher status based on spending. You’ll pay $450-$550 annually for each of these cards, so figure that unless you’re flying more than a couple of times a year, you’re paying $250-$350 for that club lounge access.
Two of these premium cards stand out. The Delta SkyMiles Reserve from American Express ($550 annual fee) is the most expensive premium airline card, but in addition to the perks noted above, it gives you two valuable additional benefits: access to the American Express Centurion Lounges when your flight is charged to the card and an annual companion certificate for one domestic flight starting in year two. We think the Centurion Lounges are the gold standard and are expanding throughout the US. The companion certificate is worth up to $750, depending on where you’re going. If you fly Delta more than a couple of times a year, and you bring a companion along with you at least once, this card has great value.
The other card we really like is the United Club Infinite Card from Chase ($525 annual fee). In addition to the standard premium card benefits, you will also get a $100 credit against Global Entry or TSA Precheck fees every four years, built in trip delay and cancellation benefits and expanded award availability and lower average award prices. In our opinion, the icing on the cake is that, in lieu of a sign up bonus, the fee for this card is waived in the first year, which means you’ll enjoy all of those benefits for free. It’s classic “try before you buy”. . .if you like what you get and you think it’s worth $525 a year, go ahead and renew. If not, cancel and move on to your next card.
There’s a third type of great points cards that we’ll call general travel cards. They, too, can be found in the no fee, low fee and premium categories. The points you earn with these cards can either be redeemed directly into dollars (cents, actually, usually one cent per point) or carry a unique value as their own “currency” which can be worth anywhere from one to ten cents or more per point. The beauty of these cards is that they can be used for all sorts of travel and other spend, including airfare, hotel, car rental, Amazon, gift cards and much more.
Analyzing value for these cards is a little more difficult and a little more personal, since there is no “norm” like we see with the hotel and airline cards above. Obviously, the no fee cards meet our value test, but your ability to earn significant points or cash back is generally far less than cards that charge an annual fee. Still, a few of the no fee cards stand out:
Blue Cash Everyday from American Express. . .3% cash back on US supermarkets (up to $6,000 per year), 2% back on US gas stations and certain US department stores, 1% back on everything else. Limit of $300 cash back.
Chase Freedom Unlimited. . . unlimited 1.5% cash back.
Citi Double Cash. . .2% cash back on all purchases.
The benefits that come with the low fee cards are all over the place. Many do offer value equal to or exceeding their annual fee, but you have to decide whether those perks are valuable to you. Here are a couple that we like:
Chase Sapphire Preferred ($95 annual fee). . .Free DashPass from DoorDash for at least your first year ($120 value), primary car rental insurance, free trip delay reimbursement, free trip disruption/cancellation/baggage delay insurance. Most importantly, this card generates Ultimate Reward Points, one of the best credit card “currencies” out there.
Citi Premier ($95 annual fee). . .$100 annual hotel credit (for hotel reservations over $500 made through Citi’s ThankYou travel portal), extended warranty, damage and theft protection, discounts on Lyft rides, generous earning structure of 3% for all air travel, hotels, gas stations, supermarkets and restaurants. Citi’s ThankYou points are also a currency with a fair amount of flexibility, but not quite up to the level of Ultimate Rewards.
Now to the premium general travel cards. These are the most sophisticated cards available, with many benefits included as well as flexible currencies and partners that enable members to find significant value in a number of ways. All of these cards include Priority Pass lounge membership (although some are a little better than others), a $100 credit against Global Entry or TSA Precheck fees every four years, no foreign transaction fees and an annual travel or airline credit. Here are the value propositions for each of the three major premium cards:
American Express Platinum ($550 annual fee). . .$200 credit for incidental expenses incurred with the airline of your choice, $200 in Uber/Uber Eats credits, $100 Saks credit, $180 in PayPal credits through June 30, 2021, current AMEX offers for $100 in Home Depot and $100 in Best Buy credits and many other AMEX offers for significant savings. If you take advantage of each of these benefits, you can pocket $880, significantly more than the hefty annual fee.
Chase Sapphire Reserve ($550 annual fee). . .$300 credit for all travel expenses, regardless of provider, $60 in DoorDash credits, free DashPass (a $120 value), up to $120 back on Peloton charges, one complimentary year of Lyft Pink, a $199 value. If you purchase all of these services, you’ll tally $799 in value, again more than offsetting the annual fee.
Citi Prestige ($495 annual fee). . .$250 credit for all travel expenses. This card also features a benefit not available anywhere else: a fourth night free, twice each year, at virtually any hotel when the reservation is made through the Citi ThankYou travel portal. If you use this benefit, it can be worth anywhere from $200-$2,000 per year, depending on the level of hotel you frequent. Even if you’re just in the middle of that range, that would bring the benefit value for this card to over $1,000 per year.
Remember, we’ve just focused on value received versus annual fee in this post. There are plenty of other factors that you should consider when deciding on which card or cards are right for you. It was interesting to research and write this, because it brought a few factors into focus:
- You really do get what you pay for. In every type of card, the premium alternative has the kind of benefits that can more than offset your annual fee.
- YOU need to determine if you will take advantage of the benefits each particular card has to offer. If you don’t use a particular perk, it’s value to you is zero.
- Once you’ve determined that you can offset annual fees with benefits, it’s time to focus on what that card can do for you to enable you to save on travel or other expenses.
- Select your credit cards based on your own preferences in hotels and airlines.
- Pay attention to sign up bonuses, since that can be a great way to help pay for your next big trip.
To learn more about these and other cards, do some more research. Check out The Points Guy https://thepointsguy.com/ or Frequent Miler https://frequentmiler.com/ or your favorite credit card site. In the meantime, keep dreaming about that next great trip, and factor in how these credit cards can make it more affordable!