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Are credit card annual fees worth it?

6 min read

Are credit card annual fees worth it?

Written By

Tyler Wade
Tyler Wade

Reviewed By

Justin da Rosa

Paying for a credit card seems counterintuitive unless you’re reaping the rewards.

Therein lies the problem. Do the benefits outweigh the cost?

Unfortunately, it depends. Fortunately, we’ll break it down to help you decide.

What is a credit card annual fee?

A credit card annual fee is like a membership fee for owning the card. It’s due when you open the account. These fees can range from around $49 to $699. The higher the credit card’s annual fee, the better the rewards (think airline miles or cash-back opportunities).

This is what we’ll investigate.

NOTE: While a high-end credit card may come with more perks like access to premium events, emergency medical travel insurance, or airport lounge access, you’ll typically need an excellent credit score and a minimum level of income to qualify for these cards.

Pros and cons of an annual fee credit card

Here are some factors to consider when figuring out whether an annual fee credit card is worth it.

The cons of an annual fee credit card

Aside from the obvious annual fee, there may be a higher annual percentage (APR), so the cost can quickly outweigh the benefit if you’re not paying off your bill in full every month.

Also, shopping for the “right” credit card can take long hours to figure out which card is the perfect match for your needs. A credit card provider may deny your approval for a card which can affect your credit score.

The three pros of an annual fee credit card

While it takes a spreadsheet to compare all the reward credit card benefits, here are some perks and benefits that may come with being a member:

Perks and benefits: from airport lounge access, insurance and more

  • Airport status. A good travel credit card may include priority check-in and boarding. You’ll often get your first checked bag for free, and if they lose your luggage or it's stolen, your credit card could pay around $500 towards replacing the items (depending on the card you have).

  • Insurance you don’t have to pay for. You’ll often get flight delay or cancellation insurance, rental car insurance, and possibly emergency medical while abroad. Finally, you may get a companion voucher so your partner flies free. Many travel cards and cash back credit cards include insurance for your mobile device and extensions on your warranties.

  • Hotel status. Hotel credit cards may give you free nights, room upgrades, and late checkouts. A free night alone could make the annual fee worth it.

  • Hanging with the elites. Premium credit cards, the ones that cost between $400-$700 per year will often give you broader access to airport lounges around the world, elite status at rental car locations, and access to pre-sale tickets for events and concierge services.

If you’re always travelling, you may value the added comforts and protection—the annual fee could be worth it.

The immediate cash credits and welcome bonuses

  • Annual fee waiver. Often, when you first sign up for a card, they’ll waive the annual fee altogether in an effort to prove its worth to you.

  • NEXUS fees. If you’re a frequent flyer, many of the providers offer a NEXUS rebate, meaning they’ll pay for your application and processing (or a portion thereof).

  • Welcome bonus. Some of these cards offer a welcome bonus just for joining. While you may pay a $120 fee, after a few months, depending on the card, you could earn enough to negate the annual fee completely (and a free flight to a local destination).

The rate at which you earn rewards to offset the annual fees

Airport lounge access, NEXUS rebates, and insurance alone make a credit card annual fee worth it for frequent flyers.

Your earn rate significantly increases with higher-end cards. For example, you’ll get 2 points per dollar spent with partners of the credit card (e.g. 2 Aeroplan points per dollar spent on Air Canada with the many Aeroplan credit cards).

If you’re more of a cash back credit card user, you must look at the finer details. So, let’s do that.

Is a cash back credit card worth it? A KOHO card example

KOHO’s Extra card gives you 2% cash back on groceries, transportation, eating and drinking (think restaurants and SkipTheDishes), and another 0.5% on all other purchases. You can earn extra cash back at selected merchants, too (e.g. 3% at Chef's Plate, 1.5% at, and 5% at Frank and Oak)—all for $84 annually.

But maybe the best part is that it’s a reloadable prepaid Mastercard so there are no hidden fees from interest charges.

So, let’s do the math and see if this annual fee card is worth it.

  • According to Canada’s food price report, a family of four will spend $1,357.37 (or $339.34 per person) per month

  • According to Statscan, the average spend on electricity, gas, and water is $2,535 per year (or $211.25 per month).

  • According to the Toronto Star, the average cost of Internet is $95 per month

  • While cell phone prices vary widely, let’s assume about $75 per month.

  • Let’s say you subscribe to at least two services (e.g. Netflix, Spotify, Prime) and say you spend $22.50 on services per month.

  • According to Statscan data from 2019 (i.e. pre-pandemic), a household spends $2,775 per year dining out at restaurants, or $231.25 per month (or $57.81 per person).

  • Finally, from that same 2019 report, the average household spends $1,785 on alcoholic beverages and cannabis per year. Since it’s likely not a “family of four with young kids” sharing this category, let’s split it two and call it about $148.75 per month or $75 per person.

Based on this chart, KOHO’s premium Extra card pays for itself within 5 months of owning it. However, we forgot a crucial figure.

According to MoneySense, the Canadian average monthly credit card spend is $2,447.

So, if we subtract our total $875.90 from the 2% cash back categories, there’s an additional $1,571.10 of spend for which KOHO gives you 0.5% cash back which equates to $78.56.

In other words, the KOHO Premium card pays for itself in its first month (which is a free 30-day trial). From then on, you’re earning nearly $100 per month.

You’ll also earn 2% on your balance, and additional cash back at selected merchants, and you can use the RoundUps feature which helps you save as you spend.

Start earning cash back on all your purchases, monitor your spending in-app, and earn extra with our partners using the KOHO Extra card.

Get the KOHO Extra card

What you need to know about downgrading from an annual fee credit card

If you paid for an annual fee credit card, and you’re up for renewal, you can try to get your credit card's annual fee waived.

Your lifestyle—career, mortgage, kids, desires—will change. Your card may no longer suit you, either you need more premium features (and have the cash to pay for a high-end card) or you can no longer afford the annual fee due to a variety of factors.

The hard part here is that at renewal time, you may have earned points you want to carry forward into the next year that will require you to pay the annual fee.

But, you have options.

Credit card companies want to keep you in their system

First, before you decline your renewal fee, know that some credit card providers have incentives to keep customers, including waiving annual fees. If not, you may downgrade to a lower-cost, fewer-benefits card, while still maintaining your earned points until you’re back on your feet.

The credit score pain if you cancel

Cancelling a credit card can hurt your credit score.

It reduces your available credit and increases your credit utilization ratio, which negatively affects your credit and can affect other rates like a mortgage or car insurance.

Applying for a new credit card can also affect your score.

Instead, you can downgrade to a no-fee version, often without repercussion and keep the points you earned throughout the year.

Is paying an annual fee for a credit card worth it?

Whether paying an annual fee for a credit card is worth it or not depends on several factors, including your spending habits, credit score, and rewards and benefits.

While paying annual fees can offer sweet rewards, perks, and bonuses, know that these annual fees also come with higher interest rates and a potential risk to overspend.

If you’re ready to pay for a credit card with an annual fee, shop for credit cards that fit your lifestyle and offer the most value for your money based on your spending level.

Alternatively, if you want to avoid paying annual fees, look for no-fee cards. If you desperately want some perks, but no annual fee, consider using your rewards to cover the cost of the fees.

It’s critical to weigh the pros and cons and explore all options before deciding whether to pay an annual fee for a credit card.

Frequently Asked Questions

Is it worth paying a credit card annual fee?

It depends on your credit score, spending patterns, and incentive options. Although paying an annual charge gives you benefits, bonuses, and insurance, it also carries high-interest rates and costs. Choose a card that best fits your lifestyle and provides the best value for your money after carefully weighing your options.

Can I negotiate credit card annual fees?

Yes, you can negotiate credit card annual fees with your credit card company. Contact their customer service and ask if they can waive the annual fee or something to keep you as a customer. Be polite, explain your situation, and highlight your loyalty and excellent payment history to increase your chances of success.

How can I avoid paying credit card annual fees?

You can avoid paying credit card annual fees by switching to a no-fee card, negotiating with your credit card company to waive the fee, or using rewards to offset the fee. You can also downgrade or cancel your card account if the annual fee is not worth the benefits you receive.

What are the best credit cards with annual fees in Canada?

The best credit cards with annual fees in Canada depend on your spending habits and goals. Top-tier rewards cards include the American Express Platinum Card and the Scotiabank Passport Visa Infinite Card. The BMO World Elite Mastercard and the TD Aeroplan Visa Infinite Card are popular for travel rewards. The KOHO Extra card is a good option for cash back rewards at only $84 per year.

What factors should I consider before paying a credit card annual fee?

Consider your purchasing patterns, credit score, perks and features, interest rates, APR, and whether the card matches your desires before paying an annual fee for a credit card. Do the math—are the rewards and bonuses worth more than the annual fee? Is it within your budget?

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Tyler Wade

Tyler Wade believes in mental wealth—a healthy approach to finances is better for your health. You can find his writing on KOHO, Forbes Advisor, and Ratehub where he also launched, produced, and hosted the Real Money Talk podcast. He's a husband to one, a father of two, and is a bit of a cyborg.



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