It All Becomes Clear

It All Becomes Clear

I’m a big fan of financial efficiency. If it is possible to get a discount on something I’m going to buy anyway, I’m all for it.

So it isn’t a big surprise when people inquire about call me out for paying annual fees in comments and email.

“Why would you pay a credit card company just for the privilege of making them money?”

“Isn’t it a waste to pay an annual fee when there are so many free credit cards out there?”

“Why would you pay a credit card annual fee? That is just dumb.”

I can certainly relate to the sentiment behind these questions. But if we strip away the emotion and just use the cold hard reason of accounting, it all becomes clear. We pay a fee now with the expectation that we will get something of equal or greater value.

Let’s check out a few…



A question in the intro comes verbatim from a conversation with a friend a few weeks ago in San Francisco:

Friend: “Why would you pay a credit card annual fee? That is just dumb.”

Me: Do you have a Costco membership?

Friend: “Yeah, of course.”

Me: Same thing.

Entry and use fees exist in many different forms; concert and sporting event tickets, Amazon Prime, Costco memberships, and yes… credit card annual fees.

The question is, “Is it worth it?”

Just a few days ago we renewed a Costco membership in Taipei for 1,350 TWD (~43 USD.)

10 minutes later we had 2 giant boxes of Pampers diapers in our cart, saving nearly $18 off each box ($0.09/diaper) when compared to the local grocery store price. (Still more expensive than US Amazon prices though.)

We still have a whole year of diaper use ahead of us, and we saved the cost of membership in just our first visit. That is a potential 500%+ return on investment, even if we only buy diapers.

$75 of raw power

$167 of Raw Purchasing Power

Free Hotel Nights

The IHG Rewards Club Mastercard has an annual benefit of a Free Night Certificate that can be used at any of the 4,900 IHG hotels worldwide. These include Intercontinental, Holiday Inn, and Crowne Plaza.

If we attend an upcoming wedding, we’ll probably use this year’s free night at the Intercontinental in Hong Kong.

Infinity Pool at Intercontinental Hong Kong

Infinity Pool at Intercontinental Hong Kong

At last look a weekend night costs $287 + tax, but we’ll pay only the $49 annual fee for the IHG card, a 585% return on investment.

Flights and Baggage Fees

A few months ago I was booking 1-way flights from Minneapolis to San Francisco with a 2-week stopover in Seattle. The cost was ~$275 each for 2 adults ($550+ total.)

Digging deeper, baggage fees were going to be $25 each per segment, a total of $100.

Instead, I applied for the Alaska Airlines Visa Signature Credit Card which has a $75 annual fee. After $1k minimum spend I received 31,000 miles. With 12,500 miles I was able to book those $275 flights for only $11.20 in taxes (total 25k miles and $22.40), leaving 6,000 miles for future use.

The Alaska Airlines card also allows 1 free checked bag per passenger, eliminating our need to pay checked bag fees.

In essence, for $75 and $22.40 in taxes we avoided spending over $650.

This $75 annual fee is one of the best $75 expenses I’ve ever had, returning 867%. And this is without even using the Annual companion fare!

(I suppose if we want to be especially precise with our accounting, the $1k minimum spend could have been spent on a cash back card for a return of $15 – $20. But the 1,000 miles remaining also have a value of ~$18, so maybe it is a wash.)

Chase Sapphire Reserve

The newest credit card in our arsenal is the Chase Sapphire Reserve, which comes with a whopping $450 annual fee!

But that a bit misleading as one of the prime benefits of the card is a $300 travel credit. The first $300 in travel related expenses are waived, which reduces the effective annual fee to a more reasonable $150. On our first statement we received credit for parking meters in Santa Monica, Uber rides, and a one-night Airbnb stay.

This card pays 3 points per dollar spent on travel and dining. Each point is worth at least $0.015, so the break even point is about $3,000.

We sometimes spend over $3k on travel and dining in one month, which makes this card one of our best earners. On an (optimistic) annual basis this is a 1200% yield.

(The Chase Sapphire Reserve also offers Priority Pass lounge access and TSA Pre reimbursement, but we wouldn’t pay for them ourselves so I value these at $0.)

Credit Card Divorce

What if you reach a point where a credit card no longer has a place in your wallet? It’s not you, it’s me.

Before doing anything, make sure that any points you’ve earned with the card are not forfeit if the account is closed. This should only be an issue with cards that hold their own point system, not with hotel or airline cards.

Next, I call the phone number on the back of the card and ask to waive the annual fee. Maybe I’ll use the card benefits in the next year, who knows.

If the annual fee isn’t waived, then I’ll ask to close the account. Easy.

But sometimes they’ll agree to wave the annual fee or even offer a retention bonus. Either way it is a win.

Credit Score

What impact does closing accounts have to your credit score? Maybe you care about that. (I don’t.)

If so, there are two things that are good to watch out for.

  • Don’t close the oldest credit card
    • 15% of total credit score is determined by the length of time you’ve had credit. A CreditWise simulation of my credit shows an 8 to 10 point drop if I close my oldest account (still Excellent.)If the oldest credit card in your credit history has an annual fee that you no longer want to pay, you can usually ask a credit card company to downgrade to a no-fee card.
  • Understand impact of reduction in available credit
    • 30% of credit score is based on the amount owed, part of which is measured relative to total available credit. If you have only a few cards, closing one of them can drop total available credit by 30-50% or more, which can have a relatively large impact to score.Instead, ask the credit card company to transfer available credit to another card before closing the account.

For equal and opposite reasons, opening new credit accounts can raise credit scores.


I hate wasting money. The majority of fees should be avoided like the plague.

But many annual fees are not just worth it, they are more than worth it. We routinely get more than 500% return on investment, even using only a portion of available benefits and ignoring credit card signup bonuses.

As shown in the examples above, this translates to free or nearly free travel opportunities. Safe travels!

All credit card benefits and cost data in this post are believed to be accurate as of the time of writing. Always verify before taking action.

Do you pay any Annual Fees?