Why I Do Not Mind Paying Annual Fee on My Premium Credit Card

I have been using Credit Cards for quite some time now. In fact, it has been more than 15 years that I got my first Credit Card. It was a simple Credit Card with no features and no reward points. The credit limit was also puny. The reason I stuck to that Credit Card was that there was no annual fee involved. Over time, however, I realised that the card was dragging my Credit Score, and the available credit limit was also low.

I always used up the max credit limit of the card on a regular basis, despite the fact that I was always paying my total amount due at the end of the statement cycle. CIBIL considered that I was using too much of available credit, and thus my score was being hammered due to high credit utilization.

This is when my bank offered me a better Credit Card. The catch I saw was that the card came in with an annual fee. With a couple of Lifetime Free Credit Cards in my pocket, at first, I thought I should refuse the card upgrade. The banker told me that I was not the first one to think that annual fee Credit Cards are not worth the extra money and hassle. They told me, however, to not simply give up on the premium Credit Card because of the annual fee. 

In return of the annual fee, the card will come with great value in the form of reward points and a number of added card features. Here is how they explained to me the advantages of premium Credit Cards that come wrapped with the annual fee we pay for them.

Understanding annual fee on Credit Card:

The annual fee on a Credit Card is like an annual maintenance fee charged by the card-issuing bank. It is a common way to account for all the rewards and services like concierge etc. provided to card users. Most of the people who get cards think that when most cards do not have any annual or joining fee, what is so special about the cards which come with an annual fee. 

The cards with annual fees are generally premium Credit Cards offered to select a group of customers who have stellar credit performance and are high spenders on the card, thus earning a lot for the bank. Generally, the cards offer annual fee in the range of Rs. 500 to Rs. 1000. For example, among HSBC Credit Cards, you can get an HSBC smart value Credit Card, which comes with an annual fee of INR 499. You get a Rs 500 Amazon India voucher in exchange of an annual fee. Moreover, if your annual spend on the card is above Rs. 50,000, this annual fee will be waived off. There are many other offers on the card in exchange for the fee, you get 10% cashback up to Rs. 1,000 in first 60 days of card issuance.

Similarly, American Express SmartEarn Credit Card is the basic card with fees of INR 495 + taxes. This is a basic card with 10X MR points on online shopping through select channels. On the other end of the spectrum is a super Premium Credit Card like American Express Platinum Card that comes with an annual fee of Rs 60,000 + all applicable taxes. The card provides you 1 lakh bonus Membership Reward Points and gives access to the world-famous AMEX Do Anything Platinum Concierge.

How to Gauge if Annual Fee on a Card is Worth It?

There are no set mathematical criteria to help you judge if the annual fee on a Credit Card is worth it. On simple observation, you can easily check if the card’s annual fee is worth your while. The decision has to be made on a case-to-case basis. If you think you can break even directly in terms of value generated by card features, the annual fee should be worth it for most people.

You should consider following five factors:

• First, check if the Rewards Program is offering the features that you can actually use. If you are a regular traveller through Airlines, see if you get domestic and International Lounge Access. See if you can convert your Reward Points to Air Miles. If you are an electronics or clothing enthusiast, see if reward point payment options are available in the stores where you visit most often for your shopping.
• Second, check how much of your regular services are being covered by the Rewards Program of your card. Check if you are getting rewards on paying for utilities like electricity and water bill as well as your fuel payments etc. Citibank Indian Oil Card has an annual fee of Rs. 500+ taxes but its fuel reimbursement program covers its annual fee very easily.
• Third, check how frequently you will be using the Credit Card in order to actually justify the extra fee. If you think you will be using the card enough times to easily recoup your fee payments, go ahead and jump on the Credit Card with annual fee. Else have a look at another factor.
• Fourth, consider the factor that a number of Credit Cards come with a minimum spend feature that allows you to claim a waiver on your Annual Fee. The condition is very simple. If in your first year, you spend a set amount of money on your card, the bank will waive off your Annual Fee for the next year and so on for the coming years. This can also account for the cases where you think the features themselves are not going to be enough to balance out the amount you pay as Annual Fee.
• Fifth, it has also been very easy for me to milk the rewards program to the maximum possible extent because I have never carried a balance on any of my cards, ever! The interest rates on Credit Cards are high, so always ensure that you pay your card bills in full.

In conclusion, my experience has been that since I have been using Credit Cards for a huge portion of my spends, I have benefitted a lot from the premium Credit Cards compared to the lifetime free Credit Cards that I have acquired!

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