Annual Fee Credit card companies are bringing back annual fees. An annual fee is a charge that you pay each year for keeping an account open. Let’s run through four reasons that you might have for justifying the annual expense of a credit card.

When you spend heavily – Annual fees are justifiable if your credit card will be used repeatedly throughout the year. Spending heavily on a rewards card with an annual fee will help you offset the cost of the fee while giving you more rewards than you might otherwise receive. It’s best to have a single credit card with an annual fee, since you wouldn’t want to pay several fees each year on multiple accounts.

To receive bigger rewards – Credit card issuers align their highest rewards with their annual fee credit cards. In one example, some credit card companies offer 1% cash back on all purchases. However, a variant of the card might offer 2% cash back on all purchases so long as you accept an annual fee of $40 per year. Given the choices, as long as you spend more than $4,000 in a calendar year you should pay the fee. Suppose you spend $10,000 per year – you’d get $100 in benefits without the fee, or $200 with a $40 fee. In this case, the difference is $60 – the difference between no annual fee and $100 in rewards vs. $200 in rewards with a $40 fee.

Extra benefits – Credit cards offer additional benefits to consumers including concierge services and insurance for travel and rental cars. Often you will find that the best “extras” come with cards with an annual fee. A frequent flyer, for example, might find that paying $25-100 per year in annual fees is less expensive than purchasing travel insurance with each trip. In this case, a small annual fee actually saves the customer money as each travel expense paid for with a credit card is automatically insured. Not to mention, the annual fee may give better access to higher rewards on purchases.

You’ll need to carefully align your spending preferences with the marginal benefits you receive when you move up to a credit card with an annual fee. Heavy spenders almost always receive more in rewards than they pay in fees, whereas light card users never truly recoup their “investment” in an annual fee credit card.

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