Dumb Money: Annual Fees on Credit Cards

by Kevin on September 10, 2008

(Photo by banootah qtr)

There are some things in life that are worth paying a premium for. The list of those things will change with each person you talk to. For us, oil changes and growing food are a few examples. I don’t pay someone to mow my lawn or walk my dog. It’s all about personal preference, how much time you save, and of course cost.

Annual Fees are Not Worth the Premium

Annual fees on credit cards baffle me. You’re paying a premium for some sort of extra service. The card works exactly the same as a non-annual fee card. The only difference is the amount of customer service you get on the phone when you call with an issue. Some cards promise to get you a single point of contact for the whole company. Some offer travel points. Others seem to add little value to your life.

I’m an avid American Express Blue Cash user. We earned $470 in cash back last year — no small sum of money for buying things we would buy anyways.

Due to the high level of use we have on our American Express card we get multiple offers from them each and every month. I can also see our card offers online.

Here’s a list of the cards AMEX is trying to offer us right now along with the perks offered:

  • American Express Rewards Plus Gold Card
    • Cost: $150 annual fee
    • Earn points to be redeemed with airlines and other travel companies
    • Dedicated customer service
    • Fraud protection, return protection, extended warranty, purchase protection, baggage insurance plan, etc.
  • American Express Platinum Card
    • Cost: $450 annual fee
    • Airport club access
    • Exclusive amenities at boutique, resort, and luxury hotels
    • All kinds of travel perks (free companion ticket when you book through AMEX, card concierge, by invitation only events, etc.)
  • American Express Preferred Rewards Gold Card
    • Cost: $125 annual fee
    • Pretty much the same perks as the Rewards Plus Gold Card

$450 for the priviledge to use a credit card? What?

My AMEX Blue Cash card pays me cash (not points that I have to spend at partner programs). I get good customer service (and if I don’t, I have the number to Executive Customer Service). I get the extended warranty protection.

I’m not a CEO

I suppose if you are the CEO of a large company and $450 is pocket change to you then the Platinum Card might have some benefits. Exclusive customer service, etc. But for the rest of us, paying an annual fee is dumb. Flat out dumb.

Even if the credit card offered the same cash back as our current card plus some of the other perks, it isn’t worth it. I earned $470 last year in cash back. Even a small annual fee like $75 or $125 wipes out 15-25% of the benefit.

And the Blue Cash card is free. Why pay for something as simple as this that you can get for free?

Don’t be dumb. Don’t pay an annual fee. Period.

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143rd Festival of Frugality: | LivingAlmostLarge
September 16, 2008 at 8:06 am

{ 7 comments }

Kimberly September 10, 2008 at 6:25 pm

I am so ashamed to admit that I paid $395 a year for AmEx Platinum for like ten or eleven years – I finally dumped it this year when they jacked up the fee.

Such a bad move to have kept it so long! I regret it.

I agree – don’t pay an annual fee!

Kevin September 10, 2008 at 9:52 pm

@Kimberly: Eeek! $3950 is a lot of money! Did you notice any increase in service?

Start-Up September 11, 2008 at 11:33 am

I currently pay a $30-$40 annual fee on my credit card. There is a version of my credit card that has no annual fee, however, the annual fee raises the percentage of reward points i receive from each purchase. The added points translate into airline miles and free airline tickets. I calculated that I would reach the free flights faster with the annual fee, more than making up for the annual fee itself. I suppose you have to keep in mind that I would have paid for the airline flight anyways.

More often than not an annual fee is bad. Especially when it only rewards you with better customer service or something to that effect. Sometimes, however, the annual fee is returned and then some.

Kimberly September 11, 2008 at 1:38 pm

Absolutely great service, consistently – that’s why I kept it so long at $395. But when they sent me a note (I think it was last year?) that it was going up to $450 I really had to reconsider. There was just some mental barrier being crossed; I canceled it before my then-current year was up and got a pro rated refund.

Kevin September 14, 2008 at 9:32 pm

@Start-Up: I guess the only risk there is if you don’t use it enough to generate the rewards to make up for it. That’s what they are counting on. But if it works for you, hey, my hat off to you.

@Kimberly: I’d be interested in hearing more about this great service. I’m sending you an e-mail.

Ray September 16, 2008 at 9:49 pm

Totally agree with you. Recently Amex called me up to offer me the Platinum card. After hearing about the annual fee I rejected them straightaway. Why would I want to pay that much when I have 4 other cards that are totally free? (Usually with 2-year waiver for annual fee–after 2 years I’ll just cancel the cards if they won’t waive the fee for year 3.)

There are so many cards these days with good perks and no annual fee, it never makes sense to pay any annual fee, ever. Those people calling me up and saying “No waiver Sir but we can…” straightaway get a “Thank you, not interested” from me.

frugalCPA February 14, 2009 at 11:48 am

I was deeply loathe to pay any sort of annual fee until I did a similar calculation to what Start-Up described above. With the fee taken into account, we’re saving about $400/year on flights that we would take whether we had the rewards or not. It’s a sweet deal.

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