While $450-$550 might seem like a lot of money to pay for a credit card annual fee, the perks offered by many cards keep getting better and better.
On the most basic level, one of the perks of many premium cards is that they offer travel credits, often in the range of $200-300 per year. This is a great opportunity to help offset the annual fee on the card.
Why don’t premium credit cards just lower their annual fees?
One of the questions I’m asked most often about premium credit cards is why they don’t just lower their annual fees rather than offering travel credits.
For example, the Chase Sapphire Reserve® Card has a $550 annual fee and offers a $300 travel credit that just about everyone should be able to get value out of, so why not get rid of the credit and lower the annual fee to $250 instead? There are probably a couple of reasons, as I addressed in a previous post:
- Issuers don’t want to dilute their own card portfolio. Card issuers are going after slightly different consumers with cards like the Chase Sapphire Reserve® Card vs. the Chase Sapphire Preferred® Card, because on principle many people don’t want to pay a $550 annual fee.
- Issuers want people to love their cards and have them at the top of their wallets. If you have a $300 travel credit you’ll want to spend it, and are more likely to have the card at the top of your wallet for everyday purchases.
Why these credits are disproportionately rewarding the first year
Typically your credit card annual fees are due on a cardmember year, which means you pay your first year’s annual fee with the first statement, your second year’s annual fee a year later, etc. These annual fees typically aren’t tied to the calendar year.
Meanwhile these travel credits are typically issued based on the calendar year, meaning you can essentially get two of them with your first year’s annual fee. For example, if you’re approved for The Business Platinum Card® from American Express now you could use a $200 airline credit between now and December 31, and then another one starting January 1, meaning you’d receive $400 worth of credits within about a month.
Then for subsequent years you’d be getting one credit per year (in the above example you’d have another credit to use starting January 1, 2018, which is before your third year’s annual fee is due). So if you’re hoping to get as much return out of cards as quickly as possible, applying towards the end of the year is ideal.
With that in mind, I figured I’d rank the travel credits offered by four popular premium credit cards, starting with my favorite:
Annual travel credit amount: $300
What the travel credit is valid for: Travel credit, which can be used for anything that’s categorized as travel, including flights, hotels, car rentals, taxis, trains, etc.
What you need to know: The travel credit on this card is tough to beat. Not only does it offer the largest travel credit amount, but it can also be the most widely used, as it even works on Ubers, parking, etc.
Annual travel credit amount: $250
What the travel credit is valid for: Airline credit, which can be used towards any airline purchase, including the cost of a ticket, award ticket fees, baggage, etc.
What you need to know: While this credit isn’t quite as big as the one on the Sapphire Reserve, it’s still bigger than many others, and can be pretty widely used. It can be used on any purchase processed by an airline, making it easy for just about anyone who travels to use.
3. The Ritz-Carlton™ Card
Annual travel credit amount: $300
What the travel credit is valid for: Airline credit, which can be applied towards all non-ticket airline purchases, including upgrades, baggage, lounge memberships, etc.; unlike the other credits, this one has to be requested manually, while the others post automatically after a qualifying purchase
What you need to know: This travel credit is for $300, so it’s as big as the one offered on the Sapphire Reserve. However, it does come with more restrictions, and has to be requested manually. Still, most people should be able to get close to face value out of this benefit. Ford has this card, and just finished maximizing out his $300 credit for the year.
Annual travel credit amount: $200
What the travel credit is valid for: Airline fee credit, which can be used towards fees incurred within airlines; however, anecdotally airline gift card purchases automatically credit as well
What you need to know: While this credit is the smallest of the cards listed here, it’s not too tough to maximize.
These annual travel credits can really help offset the annual fees on many premium credit cards. Best of all, you can often really maximize these by applying for the cards towards the end of the year. When you consider a lot of the other benefits offered by these cards, they can be useful to a lot of people who might not otherwise consider a card with such a high fee.