Is that $695 annual fee ACTUALLY worth it? (maybe)

plus Tom Kenny and a penguin scale
͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ 
September 25, 2024 • Issue #254
Dollar Scholar

Hi y’all —

I’m back from Ohio, where I helped Money launch its brand-new list of the Best Financial Planners (hold for applause). But let me tell you a secret: The whole time I was exploring Columbus, tracking the Fed decision and shaking hands with CFPs, I was actually thinking about credit card fees.

In last week’s issue of Dollar Scholar, I learned that credit card companies make a whole bunch of revenue off me in various ways (largely through interchange fees and interest). Not all credit cards have annual fees, of course, but I’m fixated on the ones that do. It seems ridiculous that I have to pay several hundred dollars just so I can spend my own money. 

I’m skeptical that the beloved benefits of a high-annual-fee card can actually be THAT great. I gotta get some answers so I can mentally move on.

How can I tell whether a credit card annual fee is worth it?

Dave Grossman, credit card expert and founder of Your Best Credit Cards, says high annual fees help cover the costs of the exclusive perks I get for being a customer. Depending on what those perks are, he says they can vastly outweigh the fee.

“I pay thousands of dollars in annual fees every year, and I calculated that I come out ahead on every single one of them,” Grossman adds.

Despite inflation, he says, most cards’ annual fees have hovered around $95 for years because $100 is a psychological barrier many issuers don’t want to cross. Some of the most popular entry-level rewards credit cards, including the Chase Sapphire Preferred, Capital One Venture Rewards and American Express Blue Cash Preferred cards, all come with a $95 annual fee. 

The next stop on the annual-fee train is $150 — this is what the American Express Green Card costs — followed by luxury rewards cards. Grossman says these fees tend to hover around $450, $550 (Chase Sapphire Reserve) and $695 (American Express Platinum) a year.

Those costs may sound hefty, but I can typically get my money back in three ways: issuer-funded benefits, network-funded benefits and points schemes, says Vrinda Gupta, CEO and co-founder of Sequin, a woman-focused debit card. 

Issuer-funded benefits include things like Priority Pass membership, which gives me access to over 1,600 airport lounges with food, drinks, free WiFi and spa treatments. (To enroll in Priority Pass without a travel credit card costs $99 a year plus $35 every time I want to visit a lounge; with a Chase Sapphire Reserve, it’s free.) Another example is Uber Cash, of which American Express Platinum members get $15 a month, plus $20 in December.

Then there are network-funded benefits, which Gupta says are paid for by a credit card network like Visa or Mastercard. These often include rental car insurance or trip protection that can cover me if I have a cancellation, delay or lost baggage.

Sweetening the deal are statement credits, like how the Capital One Venture Rewards card gives customers a credit of up to $120 for Global Entry or TSA PreCheck, and, finally, programs where I rack up points that I can later redeem points for cash back, free flights and comped hotel stays.

Life hacking is opening up a $95 annual fee credit card and using the points to book a $6,000 business class flight

This is a big business. In total, Americans earned over $40 billion in credit card rewards in 2022, according to a report from the Consumer Financial Protection Bureau. There’s a whole subset of people whose lives revolve around maximizing, or hacking, these credit card programs so they can travel the world for cheap.

But determining whether a fee is worth it to me specifically is not an easy process.

For one thing, I have to decide how much time and effort I want to devote to keeping track of everything — like, making sure I always book my travel on the card that gives me 5x travel points, or staying on top of using my credits before they expire.

“Some people call it coupon clipping,” Grossman says. “You’re paying more, you can get the value back, but you have to actually remember to do it and think about it. Some people make spreadsheets.”

If I don’t want to dive in that deep, he suggests I find a standard 2% cash-back card “and call it a day.” But if I’m seriously weighing a high-annual-fee card, Gupta says I should do some basic math to determine whether it's right for my life. 

For this, Grossman likes to use a worksheet where he writes out the benefits and monetary values associated with each card. At the end, he adds up everything in the value column and subtracts the annual fee.

If the remaining sum is negative, the card is usually a no-go. If it’s positive, that’s a solid signal that it’s a good option.

In doing these calculations, it’s crucial to remember that some perks may hold more weight for me than others. Say I’m really into Disney — while the $49 Disney Premier Visa Card may not be stellar on paper, it unlocks special character meet and greets at the parks. That might be more valuable to me than a costlier perk provided by a different, more exclusive card.

“The higher-end cards come with more benefits, for sure, but what's interesting is that they’re not equally easy to use and not equally useful,” Grossman says.

The bottom line
(but please don't tell me you scrolled past all of my hard work)

To tell whether an annual fee is worth it, I have to holistically consider the value of the benefits of the card to me in particular.

“Do the math and make sure it works for you,” Gupta says. “It’s more of an art rather than a science, and there isn’t a one-size-fits-all.”

Take My Money!
via Giphy

Smart MONEY MOVE
gold IRAs are sooo metal

GoldDon’t believe me? With a density of 19.2 grams per cubic centimeter, gold is among the heaviest of metals. Paradoxically, it’s also considered one of the most conservative investments because of its ability to hold value – even when the stock market is tanking. If you’re interested in investing in gold but don’t know where to start, some of our gold IRA partners offer educational materials for beginners.

Check out our list of top-rated gold IRAs providers to start shredding your retirement!

The information provided in this email is for educational purposes only and is not intended as investment or financial advice.

ADVERTISEMENT

Receipt of the week
check out this wild celebrity purchase
Taylor Sheridan
via Instagram

Taylor Sheridan, creator of the blockbuster TV series Yellowstone, recently bought his third ranch. His latest acquisition is in Wyoming, where he nabbed a $4.95 million, 179-acre spot with two streams and tons of fishing. Sheridan reportedly edged out actor Michael Keaton to purchase Papa’s Creek Ranch. Giddy up?

Internet gold
five things I'm loving online right now
1
You — yes, you — have a chance to help set a Guinness World Record. Through 8 p.m. ET tonight, the folks over at Solitaired.com are vying for the title of Most People Playing Solitaire Online in 24 Hours. If you log onto the website and play a free game before time is up, you’ll receive a certificate of participation (plus bragging rights for, like, ever).
2
Ever wondered why some newspapers’ nameplates have (had) periods at the end? Here’s your answer.
3
An artist tried to give Tom Kenny, the voice of SpongeBob SquarePants, a piece of artwork he created — and Kenny promptly purchased it. I’m not crying, you’re crying.
5
Stop what you’re doing and take a look at what’s going on with Olympic gymnast Stephen Nedoroscik's X (Twitter) bios.

401(k)ITTY CONTRIBUTION
send me cute pictures of your pets, please
Zojja
via Jane Sumner
Meet Zojja. Zojja purr-posefully saved up credit cards points to buy this cool blanket.

See you next week.

P.S. What's the highest annual fee you've ever paid? Are you going to play Solitaire tonight? Do you have a favorite SpongeBob meme? Send questions, comments, concerns and compliments to julia@money.com.

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