Earlier this week, one of my credit cards came up for renewal, meaning I was hit with a substantial annual fee. I did the math for myself to figure out whether the card was worth keeping, and figured I’d share my analysis and thought process in deciding to keep the card.
While many cards come with waived annual fees the first year (along with big welcome bonuses), it’s after the first year that it becomes harder to decide between keeping a card and canceling it. I’d say in general you’re best off keeping at least two cards long-term, with the following considerations:
- At least one card not issued by American Express (since they’re not accepted everywhere)
- At least one card with no foreign transaction fees (given that they can add up quickly when traveling abroad)
- Cards that maximize category bonuses, including gas, groceries, dining, travel, etc.
The obvious thing preventing people from keeping a dozen cards for a long time is the annual fee that most “valuable” cards have (there are some exceptions, like the Costco American Express, which offers 3% cashback on gas and 2% cashback on dining and travel, yet doesn’t have an annual fee). But in many ways keeping a card beyond the first year can be an investment in your credit score, ensuring you’ll be able to take advantage of great welcome bonuses in the future. I say this because the length of your average account as well as your credit utilization make up about 45% of your credit score, which could be the difference between being approved for the next welcome bonus and being denied.
Furthermore, some cards have annual benefits that more than outweigh the annual fee. For example:
- The Hyatt Visa offers one free night at category 1-4 hotels annually
- The IHG® Rewards Club Premier Credit Card offers one free night at any IHG hotel annually
- The Marriott Rewards® Premier Credit Card offers one free night at a category 1-5 hotels plus 15 nights towards elite status annually
- The Alaska Airlines Visa offers a $99 companion certificate annually
- The Starwood American Express offers fifteen towards elite status annually
But I think the key for many is to find a card with a low annual fee that maximizes your bonuses in a category that you spend a considerable amount in annually. Then, while it’s probably common sense to most of you, be sure that the additional points earned outweigh the annual fee.
If you’re an “average” credit card spender and also welcome for at least a handful of credit cards per year to maximize welcome bonuses, chances are that you’re usually working towards meeting the minimum spend on a new credit card. If that’s the case, you won’t get a lot of value out of the Premier Rewards Gold card beyond the first year, for example, despite the fact that if offers triple points on airfare and double points on gas and groceries.
For me, I spent about $30,000 on airfare on the card last year (lots of it was for clients, family, and friends), earning me 90,000 Membership Rewards points. The next best card to put that on would have been the Chase Sapphire Preferred, which earns two points per dollar, for a total of 60,000 Ultimate Rewards points. I value Membership Rewards points at a minimum of 1.5 cents each (that’s a conservative valuation), so that $175 annual fee basically “cost” me ~12,000 points. Even with that factored in I earned 78,000 Membership Rewards points, which is still a better value than I would have gotten through any other card. That doesn’t even factor in that the card earns double points on US restaurants, US gas stations and at US supermarkets, making it the card I put all my spend in those categories towards.
So there’s no “one size fits all” for which credit cards are best to keep past the first year. Some cards are worth keeping for the annual benefits, even if you don’t intend to spend a dime on the credit card (as outlined above). Other cards, however, are worth keeping because the points bonuses earn exceed the annual fee.
For the average consumer, I’d say the two cards that strike the best balance between a reasonable annual fee and great bonuses would be the Chase Sapphire Preferred® Card ($95 annual fee) and Starwood Preferred Guest American Express card ($95 annual fee).
Between the two cards you have my above three requirements satisfied (no foreign transaction fees, one card not issued by American Express, and category bonuses). The Chase Sapphire Preferred card gets you double points on dining and travel, while the Starwood American Express essentially earns you 1.25 airline miles per dollar spent (since you get a 15,000 point bonus for every 60,000 points transferred).
Furthermore, between the two cards you have just about all the major airlines and hotels imaginable covered, with the exception of Hilton. Chase Sapphire Preferred points can best be transferred to United, Hyatt, Marriott, and IHG, while SPG points can be used for SPG stays as well as transfers to American, Delta, and US Airways, just to name a few.
Which cards do you have that you consider to be “keepers?”