Is Paying An Annual Fee On A Credit Card Worth It?

Like every other question in personal finance, it depends.

There are a lot of credit cards with dismal rewards that do not warrant paying an annual fee. At the same time, I have seen numerous credit cards with rewards that more-than justify the annual fee. I’ll actually give you an example of one below.

Thanks to Grayson, who blogs at Debt Roundup, for presenting us with the Blue Cash Preferred Card from American Express. This is the ‘roided out version of the Blue Cash Everyday Card from American Express that I mentioned in What’s the Best Cash Rewards Credit Card Right Now?

The two cards are very similar, but one has good rewards with no annual fee while the other has great rewards with an annual fee. So, how do the two cards compare? Is paying an annual fee on a credit card worth it?

First, let’s compare the two credit cards side-by-side:

Blue Cash Everyday (w/o annual fee)

• $100 cash bonus after spending $1000 in first 3 months
• 3% on groceries (on $6000 annually)
• 2% on gas and at department stores
• 1% on everything else

Blue Cash Preferred (w/ annual fee of $75)

• $150 cash bonus after spending $1000 in first 3 months
• 6% on groceries (on $6000 annually)
• 3% on gas and at department stores
• 1% on everything else

Obviously, the (almost) doubled rewards points are enticing, but is it enough to justify the $75 annual fee?

Again, it depends on how much you spend.

Here’s a quick analysis:

Let’s say a couple spends $500/month on groceries and $350/month on gas. This equates to $6000/year on groceries and $4200/year on gas.

$6000 on groceries, $4200 on gas

3% groceries = $180

2% gas = $84

Total cash back =$264

$6000 on groceries, $4200 on gas

6% groceries =$360

3% gas = $126

Total cash back =$486

This scenario illustrates two things:

1. Paying an annual fee CAN be worth it
2. Using a credit card for purchases can be rewarding

Keep in mind that $486 would be underestimating the amount of cash back you could receive. You’re also receiving 2% on whatever department store purchases you make and 1% on everything else. More importantly, keep in mind that the purchases at the department stores are not necessary. Don’t buy things you don’t need in order to receive more rewards. That’s counterproductive.

As always, spend wisely.