Maximizing Value: Is Paying Your Credit Card’s Annual Fee Worth the Miles Earned?

Are Credit Card Annual Fees Worth It? A Mile-by-Mile Breakdown

October 27, 2024

Paying a Credit Card’s annual fee is often seen as an unavoidable expense, but it doesn’t have to be. A growing number of card issuers are now offering miles or points as a perk for renewing your card membership. The question for consumers is whether the value of these rewards offsets the cost of the fee. A recent study by Forbes advisor reveals that over 60% of cardholders are unaware of potential benefits tied to annual fees.

Which Cards Offer miles for Annual Fee Payment?

Several credit cards provide miles when you pay your annual fee, although the specifics vary substantially. One example is the AMEX KrisFlyer Ascend card.It offers a Renewal miles Redemption Voucher (MRV) for those who pay the S$397.85 annual fee, but this voucher isn’t a direct miles credit. Instead, it can be used to offset the cost of a redemption booking or upgrade on Singapore Airlines flights. However, there are restrictions:

• The voucher applies only to Singapore Airlines operated flights.
• It functions as a rebate, requiring you to have sufficient miles already in your account to cover the cost.
• Only one voucher can be used per booking.
• The voucher applies only to the first eligible passenger.

Calculating the True Cost of miles

When evaluating whether the miles justify the fee, it’s crucial to calculate the cost per mile. Divide the annual fee by the number of miles received. As an example, a S$196.20 annual fee yielding 10,000 miles translates to roughly 1.96 cents per mile.

It’s a common mistake to calculate this the other way around, which can lead to an inflated perception of value. Generating miles through everyday spending is different from directly purchasing them with an annual fee.

First Year Benefits vs. Recurring Fees

Some cards only offer miles for the first year’s annual fee. The Standard Chartered Visa Infinite is one such example. Subsequent years may require a call to appeal for miles, with a possibly reduced amount offered.

Annual Fee Waivers and Their Impact

If you qualify for an annual fee waiver, you typically won’t receive the associated miles. The DBS Altitude card,for example,awards 10,000 miles only when the S$196.20 annual fee is charged, reversing the award if the fee is waived.

The UOB FIRST Miles AMEX presents an exception. While it doesn’t award miles upon paying its S$261.60 annual fee, a S$50,000 spend within a membership year results in a waiver of the fee and a bonus of 20,000 miles.

Beyond Miles: Considering Additional Benefits

Don’t base your decision solely on the cost per mile. Premium cards,such as the Citi Prestige,may have a higher cost per mile (2.04 cents) compared to others like the DBS Altitude (1.93 cents). Though, they frequently enough include valuable perks like complimentary hotel nights, expanded transfer partners, and lounge access.

Is Paying the Annual fee Worth It?

Determining if paying the annual fee is worthwhile hinges on your personal valuation of a mile. While valuations vary, a common estimate is around 1.5 cents per mile. However,cheaper alternatives exist,such as earning miles through bill payments via platforms like CardUp and Citi Payall,which can offer rates as low as 1.1 cents per mile.

Key Card Comparisons

Card	Annual Fee	Miles Awarded	Cost per Mile (approx.)
AMEX KrisFlyer Ascend	S$397.85	10,000 (via voucher)	3.98 cents (potentially limited use)
DBS Altitude	S$196.20	10,000	1.96 cents
Citi Prestige	S$651.82	32,000	2.04 cents (+ additional benefits)
UOB FIRST Miles AMEX	S$261.60	20,000 (with S$50,000 spend)	1.31 cents (conditional)

Ultimately, credit card annual fees aren’t inherently negative. They often come with rewards, but evaluating whether those rewards justify the cost requires careful consideration. Direct purchases of miles through annual fees aren’t typically the most cost-effective approach.Prioritizing fee waivers or exploring alternative mile-earning methods can often deliver greater value, unless the card offers meaningful additional benefits beyond miles.

Did You Know? Many cards allow you to call and request a retention offer at renewal time, which may include a reduced annual fee or bonus miles.

Pro Tip: Always compare the benefits offered by different cards. Lounge access, travel insurance, and hotel perks can add substantial value beyond just miles.

Frequently Asked Questions

• What is the best way to maximize credit card miles? Focus on earning miles through everyday spending and taking advantage of bonus categories.
• Are credit card annual fees negotiable? Yes, you can often negotiate a lower fee or request a waiver by contacting the issuer.
• What should I consider before paying a credit card annual fee? Evaluate the value of the miles offered, the card’s benefits, and your spending habits.
• How does a credit card annual fee impact my credit score? Paying the annual fee does not directly affect your credit score, but consistently managing your credit responsibly does.
• What is a Renewal Miles redemption Voucher? It’s a voucher offered by some cards that can be used to offset the cost of a redemption booking or upgrade.

What are your experiences with credit card annual fees? Share your thoughts in the comments below!

What annual spending amount would be required to offset a $150 annual fee with a card earning 1.5x points on all purchases?

Understanding Credit Card Annual Fees & Rewards

Many travel credit cards and rewards credit cards come with an annual fee. These fees can range from $95 to over $550, leading many cardholders to question whether the credit card rewards, especially airline miles and travel rewards, justify the cost. It’s not a simple yes or no answer; it depends heavily on your spending habits and how effectively you utilize the card’s benefits.This article breaks down how to determine if paying that annual fee is a smart financial move.

calculating the Break-even Point for Miles

The core of deciding whether a card is worth it lies in calculating your “break-even point.” This is the amount you need to spend on the card to earn enough rewards points or miles to offset the annual fee. Here’s how to do it:

1. Determine Your Card’s Earning Rate: Most cards offer a specific earning rate per dollar spent. For example:

* 2x miles per dollar on travel and dining

* 1x mile per dollar on all other purchases

2. Calculate miles Needed: Divide the annual fee by the average earning rate.Let’s say your card has a $99 annual fee and a 2x earning rate on categories you frequently use. You need to earn 49.5 miles (99 / 2) for every $100 spent in those categories.
3. Estimate Your spending: Realistically assess how much you spend annually in the card’s bonus categories (travel, dining, groceries, etc.).
4. Calculate Required Spending: Divide the annual fee by your overall earning rate to determine the total spending needed to break even.

Example: A card with a $150 annual fee, earning 1.5x miles on all purchases.$150 / 1.5 = $1000. You’d need to spend $1000 on the card to earn enough miles to “cover” the fee.

Beyond miles: The Full Spectrum of Credit Card Benefits

Don’t focus solely on airline miles. Many cards offer a suite of benefits that add important value. Consider these:

* travel Insurance: Trip cancellation/interruption insurance, baggage delay insurance, and rental car insurance can save you hundreds of dollars.

* Airport Lounge Access: Cards like the Platinum Card® from American express offer access to airport lounges, providing a comfortable and productive travel experience. (Often a significant value for frequent flyers).

* statement Credits: many cards offer annual statement credits for specific purchases (e.g., airline incidentals, hotel stays, streaming services).

* Global Entry/TSA PreCheck credit: A valuable perk for frequent international travelers.

* Purchase Protection & Extended Warranty: Protects your purchases against damage or theft and extends manufacturer warranties.

* Concierge Service: Assistance with travel planning,restaurant reservations,and event tickets.

Maximizing Your Rewards: Strategic Card Usage

Simply having a rewards card isn’t enough. You need to use it strategically to maximize your returns.

* Prioritize Bonus Categories: Always use your card for purchases in its bonus categories.

* Take Advantage of Limited-Time Offers: Card issuers frequently offer bonus rewards on specific purchases or during promotional periods.

* Redeem Miles Wisely: Avoid redeeming miles for cash back, as the redemption value is typically lower. Focus on high-value redemptions like award travel and hotel stays.

* Consider Transfer Partners: Many cards allow you to transfer miles to airline and hotel partners,frequently enough unlocking even greater value.

* Pay Your Balance in Full: Carrying a balance negates any rewards earned due to interest charges.

Case Study: The Chase Sapphire Preferred® Card

The Chase Sapphire Preferred® Card, with its $95 annual fee, is a popular choice. Let’s analyze its value:

* Earning Rate: 2x points on travel and dining, 1x on everything else.

* point Value: Points are worth 1.25 cents each when redeemed for travel through Chase Ultimate Rewards.

* Break-Even Point: $95 / 0.0125 = $7,600 annual spending.

Though, the card also offers benefits like trip delay reimbursement and primary car rental insurance. for someone who travels frequently and spends $7,600 or more annually on travel and dining, the card is likely worth the fee.

Real-World Example: A family’s Travel Savings

A family of four consistently