An annual fee makes senseā€¦

ā€¦when the insurance benefits outweigh the fee

Credit cards can be one of the most cost-effective ways to get high quality insurance for both travel and major purchases. A goodĀ travel credit cardĀ will likely include most of the below coverages:

  • Emergency Medical Insurance
  • Trip Cancellation/Interruption Insurance
  • Flight Delay Insurance
  • Lost, Stolen, or Delayed Luggage Insurance
  • Rental Car Collision/Loss Damage Insurance
  • Hotel/Motel Burglary Insurance
  • Travel Accident Insurance

Purchasing those coverages Ć  la carte from an insurance company may very well exceed the $120ā€“$150 credit card fee you would pay for a high-end rewards card, plus you get all the other card benefits as well.

Some people may not believe that travel insurance is necessary, but note that your provincial health care does not apply when youā€™re outside of the country. A quick trip to the doctor in a foreign country could cost you hundreds of dollars if youā€™re uninsured, while a visit to the emergency room will have a frighteningly high price tag. And travel insurance can really come in handy for other snafus as well: I was thankful that I had travel insurance when a snowstorm caused the cancellation of my flight in Amsterdam. I was able to book a clean, convenient hotel room at the airport and enjoy a good meal knowing that Iā€™d be fully reimbursed by my credit card issuer once I submitted a claim. Other passengers on my flight who didnā€™t have travel insurance had to wait for the airline to give them meal vouchers and some shoddy rooms for the night.

Your card can also provide very valuable coverage for items you purchase as well, in the form ofĀ extended manufacturerā€™s warranty and purchase protectionĀ (covers loss or theft within 90ā€“180 days); mobile device insurance; andĀ price protectionĀ (pays the difference of a price drop within 60 days).

ā€¦when the sign-up bonus is huge

If a credit card offers aĀ sign-up bonus thatā€™s more valuable than its annual fee, then you should seriously consider applying for the card based on that perk alone. For instance, some cash back cards offer 6ā€“10% back on every eligible purchase you make for the first 3ā€“4 months after you get the card, which can add up to $100ā€“$200+ depending on the dealā€™s spending maximum.

Of course, you should factor in any spending minimums required to get the cash back or bonus points, which is a particularly common caveat for a travel card. Only go for a bonus with a spending minimum if youā€™d make that minimum anyway based on your regular, everyday spending, or if you have a big purchase coming up that youā€™re absolutely certain youā€™ll make.

ā€¦when the perks pile up.

Sign-up bonuses offer a temporary shot of value, but that value is fleeting. If your travel rewards credit card has an annual fee, but you use yourĀ cash back cardĀ for most everyday purchases, does it still make sense to keep your annual fee credit card?Ā In many cases the answer is yes.

Consider the individual value of the below card perks:

A card that renews those perks every year offers evergreen value; enough to justify a high annual fee. For example, theĀ Scotiabank PassportĀ® Visa Infinite* CardĀ comes with complimentaryĀ Visa Airport Companion Program membership as well as six free airport lounge passes each year ā€“ more than enough value to justify the annual fee. Also, it doesnā€™t charge foreign transaction fees,Ā so you end up saving 2.5% every time you make travel purchases in a foreign currency. If you spend $3,000 overseas each year that adds up to another $75 that most no annual fee credit cards would have dinged you.

ā€¦when you spend big and take advantage of a high earn rate

Letā€™s say you have theĀ SimplyCashĀ® Card from American Express, which has no annual fee and nabs 2% cash back on eligible gas purchases in Canada, 2% cash back on eligible grocery purchases in Canada (up to $300 cash back annually), and 1.25% cash back on all other eligible purchases. 1.25% is a very respectable base rate for a no annual fee card, and you might be hesitant to upgrade to theĀ SimplyCashĀ® Preferred Card from American Express, which has aĀ $9.99/month (Equals a total fee of $119.88 annually)Ā annual fee. But the Preferred Card also earns higher rates. Earn 4% cash back on eligible gas station purchases in Canada, 4% cash back on eligible grocery store purchases in Canada (up to $1,200 cash back annually) and 2% cash back on all other purchases. When is it worth it to fork over the annual fee? If you make less than a certain number of purchases in purchases per year, youā€™re better off not paying that annual fee. But most of us will actually rack up the level of spending needed quite easily. Check out the below annual spending levels, which are conservative estimates for an average Canadian consumer:

  • $3,500 on groceries
  • $2,000 on restaurants
  • $2,000 on gas

And thatā€™s not including a number of other expenditures like recurring bills, travel, and entertainment.

An annual fee doesnā€™t make senseā€¦

ā€¦when you donā€™t use the benefits

Times change, and you should periodically compare your current lifestyle with your current card benefits. If your usual travel pace has slowed considerably (pandemic much?), or youā€™re newly affected by ageism (most credit cardsā€™ travel medical coverage is only valid for those 65 or younger), thereā€™s no point in forking over a hefty annual fee for insurance coverages youā€™re not really using. Similarly, you may have enjoyed a credit cardā€™s annualĀ companion fare ticketĀ when you and your partner jetted off to romantic getaways every year; but that feature is just wasted money after a breakup or divorce.

ā€¦when you can get the benefits you want from a no-fee card

Some no annual fee credit cards are effectively useless, but there are aĀ number of them out thereĀ that may offer a surprisingly decent cash back or rewards rate and a few cool features to boot. If you donā€™t care about airport lounge access and what youā€™re really after is waived foreign transaction fees, skip theĀ Scotiabank PassportĀ® Visa Infinite* Card and go for theĀ Home Trust Preferred VisaĀ instead. ThatĀ $150Ā youā€™d normally pay on an annual fee can be diverted to a fancy travel pillow and a massage between flights.

ā€¦when youā€™re carrying a credit card balance

If you find yourself routinely carrying a balance on a credit card with a large annual fee, youā€™re probably better off sayingĀ au revoirĀ to your rewards and cash back and going with aĀ low interestĀ card that skips the annual fee (Ć  la theĀ MBNA True LineĀ®Ā MastercardĀ®)ā€”at least until youā€™ve paid off all your credit card debt and your spending is in check.

Most rewards and cash back rates top out at 5% or soā€”compare that with the gouging 19.99% interest those same cards charge on purchases.

How to stop paying annual credit card fees

1. Get a banking plan that waives your annual fee

Many Canadian banks offerĀ bundled banking plansĀ that waive the annual fee on a selection of their premium credit cards. For example if you get TDā€™s All-Inclusive Banking Plan ($29.95 waived with a $5,000 monthly balance), you can get the annual fee rebated for your choice of one of five premium credit cards, including theĀ TDĀ® AeroplanĀ® Visa Infinite Cardā€˜sĀ $139Ā annual fee.Ā Similar annual fee waivers are offered with bundledĀ Scotiabank,Ā HSBC, and RBC bank accounts.

ā€ Terms and conditions apply.

This offer is not available for residents of Quebec. For Quebec residents, please clickĀ here.

2. Call and ask for your annual fee to be waived

You know the old saying ā€œsqueaky wheels get the greaseā€? Itā€™s true. As our very own Wayne Gretzky said, ā€œyouā€™ll miss 100% of the shots you never take.ā€

In that spirit, if youā€™ve been a longtime customer, or youā€™re spending a princeā€™s ransom on your credit card every year, call your credit card issuer and ask them to waive your annual fee. You may not even have a chequing account with the bank, but your credit card loyalty and/or annual spending level may still make you deserving of a fee waiver.

If nothing else, let them know youā€™ve received an offer with a fee waiver from a competitor, or that your chequing account with your retail bank waives the annual fee for one of their premium credit cards.

3. Get a credit card with a first year annual fee waiver

You donā€™t buy a new pair of jeans without first trying them on do you? That same attitude can be applied to your credit cards: Why pay for it before you determine if its points/cash back are easy to redeem, if you use its features, and if the customer service is good? Some of theĀ best credit cardsĀ in Canada waive the first year annual fee to make switching a little easier for you. With so much fine print in the industry, a credit card company should have to earn our trustĀ beforeĀ we shell out a dime.

4. Downgrade your card

If you have a premium credit card and you findĀ itā€™s not worth the annual fee, you may be able to ask for a downgrade to one of the credit card issuerā€™s no fee cards. You may not want to cancel the card, because you want to keep the credit line available for a rainy day, or you may simply want a no fee back-up card, in case your primary card gets lost, stolen, or frozen.

5. Cancel your card

If youā€™ve exhausted the above options and/or youā€™re confident that you can get the benefits you need from a no annual fee card, perhaps the time has come to cut your overpriced plastic to bits.

But take the following into consideration before you reach for the scissors: Cancelling a credit card may temporarily hurt yourĀ credit scoreĀ because it increases your credit utilization ratio (total balances to credit line). However, if youā€™reĀ cancelling a credit cardĀ and replacing it with a new cardā€”particularly with a credit limit equal to or higher than the cancelled cardā€”you should be fine. Moreover,Ā credit utilization shouldnā€™t be as much of a factor overall if youā€™re diligently paying off your credit card balance each month.

To fee or not to fee?

Instead of focusing on the fee that youā€™ll pay every year for a card, take a look at the benefits that youā€™ll get. Do those benefits outweigh the cost of the annual fee? If the answer is yes, then why not pay it? As long as you pay off your balance in full every month, having card benefits that are worth more than the annual fee is like getting free money. Factor in those signup bonuses and youā€™ll be scratching your head and wondering why you ever discriminated against cards with annual fees in the first place.

This post was not sponsored. The views and opinions expressed in this review are purely my own.

American Express isĀ notĀ responsibleĀ for maintaining or monitoring the accuracy of information on this website. For full details and current product information click the Apply now link. Conditions apply.

Barry Choi Contributor

Barry Choi is a Toronto-based personal finance and travel expert who makes frequent media appearances. When he's not educating people on how to be smarter with money, he's earning and burning miles and points for luxury travel.

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