Many people’s first credit card does not have an annual fee, given the product is typically acquired at an earlier stage in their life, and often people would like it to stay that way. The idea is that if you pay your balance off in full at the end of the month and have a no-fee card, your credit card could end up costing you nothing. However, you may be missing out on valuable rewards, paying for some of the features out of pocket, and, in a way, spending more than you would with a credit card that has an annual fee.

It’s possible you may want to keep it simple or may be set in your ways and will never want to consider a card with an annual fee. However, if you take the time to calculate the cost of paying for features or perks out of pocket, you may just change your mind.

Let’s dive into the details.

Why do some credit cards have an annual fee?

Many credit cards that sport an annual fee offer a benefit that you would not otherwise get. Sometimes it’s rewards or insurance coverage, but it can also be low-interest rates or an opportunity to rebuild your credit.

Annual fees can range anywhere from around $20 to nearly $1,000. Yet, there are some extraordinary exceptions. The invite-only Centurion card from American Express (only available in the U.S.), also known as the Black Card, has an annual fee of $2,500! Cardholders get the privilege of no spending limits, among other luxuries.

However, for the majority, the average credit card annual fee ranges from roughly $100 to $150.

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What do credit cards with an annual fee offer?

Generally, a rewards credit card with an annual fee will provide members with higher earn rates for rewards, insurance coverages, exclusive perks or access to lounges, events, or other offers.

Bigger bonuses

Many fee cards also offer significant welcome bonuses. For example, some travel rewards cards will offer enough points for a free domestic flight. You won’t see those kinds of offers from a no-fee card.

It is important to keep in mind that it is not recommended to sign up for credit cards strictly for the promotion. Not only will frequent credit card sign-ups affect your credit score, but you may not qualify for the rewards if you dump the card after a few months. Sometimes, the credit card conditions state that you must keep the account open for at least 12 months or celebrate the account anniversary to qualify.

More rewards

Usually, credit cards with annual fees will offer a higher percentage of cash back for your purchases or have larger points multipliers (the categories where you earn the most rewards).

For example, the SimplyCashTM Card from American Express has no annual fee and offers cardholders 1.25% back on purchases. The SimplyCashTM Preferred Card from American Express has a yearly fee of $99 but offers 2% cash back. Jump down to some calculations.

Perks come in all sizes. Here are some fantastic perks found on various rewards credit cards:

  • Roadside assistance
  • Airport lounge access
  • Priority boarding through select airlines
  • Nexus fee application rebate
  • No foreign transaction fees
  • Companion flight vouchers
  • Free hotel stays

Insurance coverages and features

Another great benefit is insurance coverage. Some credit cards come with a full suite of travel insurance. While travel may be limited during the COVID-19 pandemic, cardholders may still be able to leverage some coverages, such as car rental theft and damage insurance.

  • Car rental theft and damage
  • Travel accident
  • Out of province/country emergency medical
  • Lost or stolen baggage
  • Flight delay or interruption
  • Baggage delay
  • Hotel/motel burglary

Here are some more common insurance features:

  • Extended warranty
  • Purchase protection

While, here are some more unique coverages:

  • Mobile phone insurance
  • Price protection (If the price of an item you bought drops or goes on sale within a number of days, you may be able to claim the savings up to a specific amount per year)

Are there eligibility requirements for credit cards with an annual fee?

While some credit cards with annual fees are tailored to those who are looking to rebuild their credit, some of the top tier rewards credit cards have strict eligibility requirements.

Annual income requirements

Many credit cards don’t have specific income requirements. However, those that do will usually state those details in the eligibility section. For example, many of the World Elite Mastercard credit cards require a minimum personal income of $80,000, or an annual household income of $150,000.

Your credit score

Your credit score may also impact your ability to apply for higher tier cards, which may require your rating to be excellent. Yet, one of the best cards on the market, the American Express CobaltTM Credit Card, only requires a fair credit score.

How to calculate if an annual fee card is right for you

To calculate if an annual fee is worth it, you will need to pull out your budget.

Annual spend

Calculating how much you spend on your credit card each month will help determine if you make enough purchases, at times in specific categories, to outweigh the cost of the annual fee. One thing you don’t want to do, is to increase your spending on credit cards unnecessarily. You can always shift your spending to a credit card that rewards you most in the categories that suit your lifestyle.

Reward earn rate

Next, you will need to know the earn rate of the card you find the most appealing. If the card features an accelerated earn rate in particular categories, it can be helpful to know how much you spend in those areas, like gas or groceries. Consider some of the newly expanded categories like dining and food delivery, for example.

Canadians may find themselves ordering in more often during COVID-19. Some cards, like the American Express CobaltTM Card, offer more rewards for food delivery, including UberEats, while others highlight subscription services like Netflix.

Savings from perks and benefits

Then take a look at the perks that you would use. For example, a roadside assistance program may cost you around $70 a year. If you typically buy travel insurance, factor in those cost savings, too.

Pro tip: Having a roadside assistance plan can save you on car insurance as well.

Welcome offer

The bonus rewards or points won’t help you determine if the card is worth it year-over-year. You may want to keep this figure out of your calculations.

Annual fee

Of course, you will also need to know the annual fee of the credit card in question. Although some issuers will waive the annual fee for the first year or offer an annual fee rebate as an extra welcome bonus, you will want to know this detail if you plan on keeping the card.

The calculations

For this example, let’s say your annual spending comes in at $24,000 ($2,000 a month).

We’ll take two cards, one with a yearly fee and one without — the TD Cash Back Visa Infinite* Card ($120 annual fee) and the TD Cash Back Visa* Card (no annual fee).

For this scenario, we won’t include the value of the perks. You can justify that value, depending on which you find useful.

Credit card TD Cash Back Visa Infinite* Card TD Cash Back Visa* Card
Rewards equation (Annual spend x reward earn rate) – annual fee = total value over the year + (savings from perks) (Annual spend x reward earn rate) = total value over the year
The math

If you break down the yearly spending of $24,000 by the point multipliers, it could look something like this:


  • Grocery: $6,000 x 3% = $180
  • Gas: $3,000 x 3% = $90
  • Recurring bill payments: $3,600 x 3% = $108
  • Other: $11,400 x 1% = $114

If you add them all up, you get $492.

Finishing the equation, we take the rewards and subtract the annual fee.


$492 - $120 = $372


Even without the cost savings from the Deluxe TD Auto Club Membership or the travel benefits, this consumer would come out ahead.

Luckily, this card features the same categories, although the cardholder earns a lower percentage of cash back on purchases.


  • Grocery: $5,000 x 1% = $50
  • Gas: $3,000 x 1% = $30
  • Recurring bill payments: $3,600 x 1% = $36
  • Other: $12,400 x 0.5% = $62

If you add them all up, you get $178.


*The average Canadian household typically spends $6,000 a year on groceries. However, this card features a spending cap of $5,000 in each of the categories with a point multiplier — gas, groceries and recurring bill payments. After the cardholder reaches $5,000 at 3%, they will earn a regular rate of 0.5% back on purchases.

Year-over-year value $372 $178

TD Cash Back Visa Infinite* Card: This offer is not available for residents of Quebec. For Quebec residents, please click here.

TD Cash Back Visa* Card: This offer is not available for residents of Quebec. For Quebec residents, please click here.

A comparison

The total year-over-year value for the no-fee card is $178 (not including the welcome offer). That is $194 less cash back than the alternative card that has a $120 annual fee.

Do the perks outweigh the yearly cost?

Although some consumers may not come out ahead on the rewards front, they may benefit from the intangible perks. Whether it is free airport lounge passes or priority check-in, the little luxuries provided by your credit card with an annual fee may be worthwhile.

Additional considerations

However, there are a few extra considerations to take into account. Those carrying a balance may want to focus on paying down their debt rather than paying fees. Also, those aged 65 and over may not benefit from the insurance coverages offered by rewards credit cards.

Compare credit cards with an annual fee

The calculation can seem like a lot of work. Thankfully, the RATESDOTCA credit card comparison tool can break down the first-year value of the best credit cards in Canada. It will even tell you how much you can expect to earn in the following years. So, you won’t have to factor in the welcome bonus or annual fee rebate. Plus, it has all the details on perks and rewards.

This post was not sponsored. The views and opinions expressed in this article are purely my own. The product information was accurate as of the date of this posting, August 10, 2020.

Hayley Vesh

Hayley Vesh is a creative, resourceful, and knowledgeable content producer who is passionate about financial literacy, storytelling, and generating ideas. She writes about credit cards, savings, debt management, and personal finance. In her spare time, Hayley can be found wandering in the woods, hunting for second-hand treasures, or curled up with a steeped tea and a good podcast.

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