Credit Cards

Why Credit Cards With Annual Fees Are Usually Better

Why Cards With Annual Fees Are Usually Better
Jay Kaul
Written by Jay Kaul

Cards With Annual Fees Actually Can Pay You

Standard Chartered has a card for every type of spender. Rewards points, cash back, or travel rewards.

Standard Chartered has a card for every type of spender. Rewards points, cash back, or travel rewards.

As you are well aware from reading CreditSmart everyday (we know you do!), there are many different types of credit cards out there. Rewards credit cards, cash back credit cards, fuel credit cards, low interest credit cards, etc. They are categorized depending on the type of rewards and perks they offer and target different crowds. Some of the benefits are really good…great even!

To balance out the amazing perks, cards often charge annual fees. As the name suggests, annual fees is the fees that you have to pay once a year. Easy right? Let us show you how these fees are essentially erased through your normal spending.

Don’t Be Afraid Of Annual Fees

Some people, who do not mind paying annual fees on their credit card, do so because they feel that they are getting more value in return of what they are paying. Here are some reasons why credit cards with annual fees are generally better than ones with no fee at all.

1. Bigger rewards

Credit cards that come with annual fees generally offer much bigger rewards than their free counterparts. People who spend a lot on their credit cards benefit from bigger rewards, as they get to earn more perks for their regular spending. And “a lot” is a variable term. For many people, simply putting everyday purchases on your card instead using cash easily earns you enough in rewards to counteract the fee.

These rewards are generally offered through two sources. One is through the sign up bonus of the credit card and the other is through the rewards rate that cardholders get on their spending. Moreover, issuers of such cards usually waive their annual fees for the first year in order to lure more customers to get their credit cards.

2. Rewards outweigh the fees

That’s what we just said, and it’s true! Credit cards with annual fees offer rewards that outweigh the fees itself. In simple words, the rewards have more value than the annual fees of the credit card. For instance, if the annual fee for a credit card is Rs. 1000, then it will be offering you much bigger rewards, such as 1 reward point on all purchases, 5 per cent cash back on dining out and hotel bookings, free monthly movie tickets, access to airport lounges, etc. At a certain point you most people will spend enough on their card to surpass the fee in either cash back rewards or the value added from other high value perks.

3. Other high-value perks

You also get other types of high-value benefits, besides bigger rewards on credit cards with annual fees. For example, airline miles, insurance coverage, liability coverage, extended product warranties, access to premium airport lounges, anniversary and birthday bonuses, elite status, club memberships, annual travel credits, free baggage check at the airport, superior credit card fraud protection, worldwide usage, etc.

Basically, if you style your life accordingly and plan your purchases to be paid with your rewards card, you could end up doing very well for yourself in rewards points or other cash back/incentives. It’s all about consistency and finding a card that rewards your types of purchases best. Making your money go further is not as difficult as it seems, nor is getting the value above and beyond the annual fee out of your card.

If You Have Bad Credit ,A Different Type of Annual Fee Card

Useful for people with damaged credit

On the opposite end of the spectrum, there are annual fee cards with no perks at all, but have their own place for bad credit users. People who have bad credit generally do not qualify for a no-annual fee credit card. In such a case, they have to go for a secured credit card, which comes with annual fees. Through these types of cards, although you have to pay annual fees and may not even earn rewards, you can rebuild your credit score. It is worth the cost for the time being, when you want to rack up your credit.

Once you improve your credit score, you can consider switching to an unsecured card with no annual fees. However, before you opt for a secured credit card, make sure that you do your research as some secured credit cards charge a lot of money in annual fees and do not even report to all the credit bureaus. So, read the fine print before you apply for such type of credit card.

After reading this post, you may consider opting for a credit card with annual fees. But, before you do so, make sure that you study your spending habits, so that you can calculate if a credit card with annual fees is really worth it. Moreover, it is wise to make the most of your credit card with annual fees by capitalizing on your rewards earning potential on the things you purchase.

About the author

Jay Kaul

Jay Kaul

Jay is a financial and credit expert and freelance contributor to CreditSmart. He's always keeping his eyes open for the latest credit card trends in India and provides a sharp insight on new entries into the market.

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