GigaPoints Research Series

What the Data Tells Us About Annual Fees

Published: 09/02/2021

GigaTake: The more you spend each year, the more likely paying an annual fee will pay off in the long run. $12,000 a year in spending seems to be the tipping point.


Annual fees are a hot-button issue for credit card users. Some consumers avoid annual fee cards on principle—why help credit card issuers make more money when there are so many free options available? Others believe that more expensive cards are better, without really examining how they stack up.

At GigaPoints, we let data guide us. We use it to match consumers with the cards that will earn them the most rewards, weighing dozens of variables. Annual fees are a big factor in our calculations; the GigaPoints algorithm is designed to determine whether (and by how much) the benefits of a card outweigh its costs.

In addition to letting us identify the best cards for individual spenders, our data also lets us draw larger conclusions about annual fees. We recently examined anonymized data for 1,000 GigaPoints users and used the spending patterns to calculate annual credit card earnings for a range of scenarios. We made some interesting discoveries:

  • Annual fees vary widely by card type. Almost all cash back cards have no annual fee. Meanwhile, roughly half of cards that earn flexible points and most airline and hotel cards have annual fees.
  • Most annual-fee cards come with a Welcome Bonus that helps offset the first year fee.
  • If you spend less than $1,000 a month on credit card charges, you’re probably better off with a card that has no annual fee. If your spending is higher, a card with an annual fee will likely pay off in the long run.

We also confirmed that annual fees aren’t inherently good or bad. Depending on how you spend, an annual fee may be a magic multiplier that earns you a lot more rewards—or it may be a waste of money. Let’s dive in.

What Types of Cards Have Annual Fees?

In 1990, AT&T launched its Universal credit card with a bold promise: no annual fee for the life of the card. At the time, customers had to pay to carry most credit cards; AT&T introduced its no-fee card in a bid to retain long distance calling customers. The industry has shifted dramatically since then—so much that many readers are probably wondering what a long distance carrier even is.

Due largely to very technical factors like “interchange fees,” fee-free cards are now very common in the U.S. In fact, of the 100 cards GigaPoints has identified as the most rewarding on the market, 53% charge no annual fee.

For cards that do charge annual fees, most are under $100. On the other end of the spectrum, the American Express Centurion (aka the Black Card) has a $5,000 annual fee. It also doesn’t make the cut for the GigaPoints 100 given its crazy annual fee and limited earnings.

Below, we have put the annual fees into buckets and charted how many cards fall into that range:

How many cards have annual fees? Of the GigaPoints Top 100, just over half have no annual fee.

Annual fees aren’t evenly distributed across different types of cards. At GigaPoints, we categorize cards into a few big buckets:

  • Cash back: Rewards are paid in cash or a similar form (i.e. statement credits)
  • Airline: Rewards are affiliated with an airline program.
  • Hotel: Rewards are affiliated with a hotel program.
  • Points: Rewards are paid in a points currency which can be redeemed or transferred to other programs.
  • Travel: Rewards are paid in points that can be redeemed for travel (usually statement credits for travel spending).

We find that each category of cards has a different approach to annual fees. Cash back cards generally aim for simplicity and rarely have annual fees. Of the cash back cards that GigaPoints tracks, only two charge annual fees: the American Express Blue Cash Preferred and the Capital One Savor. Each card pays a higher cash back rate than its no-fee equivalent:

Annual Fee Dining* Entertainment*
American Express Blue Cash Preferred $95 6% 3%
American Express Blue Cash $0 3% 2%


Annual Fee Dining* Entertainment*
Capital One Savor Rewards $95 4% 4%
Capital One SavorOne Rewards $0 3% 3%


When you look at points cards, the landscape is more diverse. While a number of fee-free points cards are available, many points cards do have annual fees—including virtually all of the top earning cards. On the chart below, you can see a cluster of cards (8 different ones) with a $95 annual fee. Then there’s another small group of super-premium cards with annual fees of $400 and up. Almost all of these offer some super-charged earning categories along with impressive perks.

Annual fees vary by the type of card. Most cash back cards have no annual fee, but it’s different for other types of cards.

There are fewer no-fee airline and hotel cards, but otherwise the airline and hotel cards follow a similar pattern. Most clump in the $75-100 range, offering perks like free checked bags for airline cards or a free night for hotel cards. At the very high end, the $450+ cards are almost exclusively airline cards that offer airport lounge access.

What An Annual Fee Buys

It may not be a million-dollar question—more like a ninety-five dollar question. But why pay an annual fee at all? Paying an annual fee for a credit card generally yields three types of benefits:

  1. Better rewards earnings. A card that charges an annual fee might pay 3 points per dollar for groceries or travel, instead of 1 point per dollar.
  2. Welcome bonus. Cards with annual fees often offer welcome bonuses for opening an account. These bonuses can be significant.
  3. Additional perks. Some cards with annual fees give cardholders extras like airport lounge access, free checked bags on flights, an annual free hotel stay, and even access to concerts or other special events.

Case Study

The potential advantages of paying an annual fee are clear when you compare a pair of credit card siblings, the American Express Blue Cash and the American Express Blue Cash Preferred. The Blue Cash Preferred has a $95 annual fee. The Blue Cash has no annual fee. At what point does the $95 annual fee start to make sense?

Imagine you spend $1,000 a year on groceries on each of these cards. With the Blue Cash, you would receive $30 cash back ($1,000 x 3%). The Blue Cash Preferred pays double that, for a total of $60. But because of the annual fee, you end up losing $35 ($1,000 x 6% – $95 annual fee).

Below, we have modeled how each of these cards perform given actual data from 1,000 GigaPoints users. If you were to put all of your spending on a Blue Cash card, for example, the Preferred would start to come out ahead around $15,000 worth of spending each year. Below that point, the annual fee overwhelms the additional earnings. Of course, your own spending patterns will drive which card is best for you, but we use this as an example.

Which American Express Blue Card does best? It depends on your level of spending.

Whether the first benefit is worthwhile for an individual consumer is straightforward to quantify —if extremely time-consuming for humans to calculate. The GigaPoints Analyzer can do it easily, though, determining in seconds how many points someone would earn over the course of a year with hundreds of different cards.

Another benefit of annual-fee cards is that you normally get a welcome bonus when you open an account. All but four of the GigaPoints 100 Top Cards with annual fees include some sort of welcome bonus. But some no-fee cards offer bonuses as well.

A lot of no annual fee cards don’t offer any welcome bonus. But most annual fee cards include some sort of annual bonus.

In this chart, the size of the circle represents how many cards met that criteria. For example, there are 17 cards with no annual fee—and no welcome bonus. There are 18 other cards that no annual fee, but come welcome bonuses of at least 20,000 points. As fees go up, bonuses do too. Any card with more than a $200 annual fee will offer a welcome bonus of at least 50,000 points.

Do welcome bonuses make annual fees worthwhile? It depends. Welcome bonuses are, of course, a one-time windfall, while annual fees are charged every year. But with many welcome bonuses being worth $500 or more, one welcome bonus can often make up for a few years of annual fees.

Finally, there’s the third benefit of paying an annual fee: the extra perks. These are more complicated. While some are easily quantified, others depend on how much a card holder uses the benefits, and that can vary wildly from user to user and month to month. In some cases, a perk’s worth really depends on how much a consumer values it.

When Are Annual Fees Worth It?

This is a question that GigaPoints gets asked a lot. And while it really depends on a consumer’s individual spending habits, there is a general level of spending where annual fee cards pay off.

An annual fee is a fixed cost: It’s the same whether you spend $100 a year with your card or $100,000. If you only spend $100 a year on a card, it doesn’t make a huge difference whether you’re earning 1% or 3% back on your purchases—the difference is only $2. Those rewards are also tiny compared to the annual fee itself, making the fee a waste of money.

But the more you spend on a card, the bigger the gap gets between those earning totals. For a $100,000-a-year spender, the difference between a card that earns 1% in rewards and a card that earns 3% in rewards is $2,000. That’s $2,000 that requires no extra effort beyond taking a different card out of your wallet. And the rewards far outpace that $100 annual fee.

As someone’s annual spending increases, the value from an annual fee card increases and the relative cost of the annual fee drops, which means annual fee cards make more sense.

We wanted to identify the boundary line—the spending level at which annual fee cards start making sense. GigaPoints research finds that right around $12,000 a year in credit card spending, or $1,000 per month, is where annual fee cards are a smarter choice.

If you spend less than $1,000 per month on your most-used credit card, a no-fee card is probably best, because the additional rewards and perks won’t outweigh the cost of the annual fee. If you spend more than $1,000 per month, the cost of the annual fee may well be made up in the increased earnings from that card.

In the chart below, we’ve plotted anonymized user data. We’ve taken a sampling of users and modeled how much each person would have earned from the card that is the best match for their spending, then charted that against their total annual spending.

At lower levels of spending, most users will find their best card doesn’t have an annual fee. This flips at higher levels of spending.

For users who spend less than $5,000 a year on their credit cards, a no-fee card is the best match almost 100% of the time. At $10,000 of annual spending, cards with an annual fee show up as the #1 recommendation more often, about 17% of the time. But right around $12,000 of annual spending, annual fee cards start pulling ahead and are our most recommended cards about 50% of the time. Beyond that level, cards with annual fees are almost always predicted to earn our users more.

How to Value Additional Benefits

Our analysis of spending levels and annual fees doesn’t fully take into account special credit card perks. As you move up the annual fees ladder, you’ll see more cards that come with special extras like airport lounge access, free checked bags or credits for certain types of spending. The challenge with these perks (and one reason credit card companies love them) is that they can be very difficult to value.

Let’s say you’re considering the United Explorer credit card, which has a $95 annual fee. Last year, you flew three round-trips on United Airlines and checked two bags, one for you and one for a companion. They cost $35 per bag, for a total of $420. Since the United Explorer gives cardholders free checked bags, the $95 annual fee would be well worth it. But if the next year, you don’t fly United at all—or earn Premier status, which comes with its own free checked bag— the value will dramatically change.

At GigaPoints, we try to take a conservative approach to valuing perks, since we don’t want to overstate the value of a particular credit card. If we can confidently value a given credit card perk, we will include it in our calculations. But if it is variable by individual and usage, we tend to exclude the value and let it be a happy bonus for users.

For example, the Chase Sapphire Reserve includes a $300 statement credit for travel spending each year. It is an annual credit, requires no activation and applies to any spending categorized as “Travel.” In this case, our algorithm can analyze a user’s spending and calculate how much that benefit would have earned them.

On the other hand, the American Express Platinum includes an Uber benefit that gives card holders $15 in Uber Cash each month (and $20 in December). It requires a user to add that card to their Uber account and the credit doesn’t roll over every month. Active Uber users can net $200 in free food and rides, a significant value, but many others may realize almost no benefit.

Over time, we plan to model how often these benefits get used and improve our ways of valuing them. But for now, we plan to present the data that we have and then let users apply their own values.