How I justify the annual fee on my credit cards after the first year

Mar 28, 2021

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Editor’s note: This story has been updated with new information.

Credit cards often come with an enticing sign-up or welcome bonus, which can be worth far more than the annual fee they charge — at least in the first year. But most credit cards only award that bonus once over the lifetime of the card.

Related: The 7 best UK card sign-up bonuses

As the end of your first year of holding a credit card approaches, you need to reassess the value of your card before the annual fee for the second year kicks in. That decision of whether to keep the card or not can be a tricky one. Here’s what I look for in order to keep a card.

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1. Annual bonuses, certificates or vouchers

Though the best bonus is likely to be given within the first 90 days of holding the card, some cards do offer (lesser) bonuses for subsequent years if you either keep the card (and pay the annual fee in the second year) or reach a certain spending target during those subsequent years.

For example, one of the best features available for any credit card in the U.K. right now is the British Airways Companion Voucher, available through the following cards:

You can earn one of these each and every year you hold the card by reaching the necessary spending targets. For me, I can easily redeem the Companion Voucher to save more money than the annual fee, so this benefit alone is worth keeping the card beyond its first year and that first-year welcome bonus.

Related: The ultimate guide to the British Airways Companion Voucher

Similarly, the Preferred Rewards Gold Card from American Express offers cardholders an additional 10,000 Membership Rewards points each year when they spend at least £15,000 on the card within a 12-month period. Based on TPG U.K.’s most recent valuations, those points are worth £140 — the same as the annual fee that’s due each year.

(Photo by Ben Smithson/The Points Guy)
(Photo by Ben Smithson/The Points Guy)

2. Complimentary hotel elite status

I love the elite hotel statuses that come with my Platinum Card from American Express, especially the Hilton Honors Gold status, which comes with free breakfast, increased points earning and room upgrades. The Platinum Card does have a steep annual fee of £575, but if you are regularly staying in hotels where you can use this status, the benefits and savings can justify the fee.

Related: Which is the most valuable complimentary elite hotel status with the Platinum Card from American Express UK?

I stay in hotels regularly for both TPG work and personal travel, and have managed to obtain a lot of value from these statuses.

Related: Taking advantage of the free hotel status from my credit card: TPG staff success story

3. Travel Insurance

Depending on where, when and how you travel, you could be spending hundreds of pounds each year on travel insurance for you and your family. There are several U.K. credit cards that offer this as a complimentary benefit, and you can save plenty by understanding and relying on this rather than paying for a separate policy.

You may also utilise some benefits like purchase protection and refund protections that come with many cards. You won’t have access to these if you cancel the card.

The Alps of Austria. (Photo by Franz Pritz/Getty Images)
(Photo by Franz Pritz/Getty Images)

4. Ongoing points earn

If I did decide to cancel a card because I thought I couldn’t justify the annual fee, I might move my spending to another card instead, as I try and earn points for every pound I ever spend. But if you were considering cancelling a card and not switching to another, then think about this:

  • If you would have otherwise spent £20,000 on a card that earns 1 point per £1 spent over the course of your card year; and
  • You instead make those purchases using a debit card or with cash because you’ve cancelled that card to avoid its, £150 annual fee; and
  • You value those points at 1p each, then
  • You’re missing out on £200 of points to avoid paying a £150 annual fee.

Try not to let any points go to waste and consider the value you would obtain for them against the cost of the annual fee you will be charged for.

Related: Why keeping an additional credit card for emergencies did me more harm than good

Bottom line

Choosing to keep or cancel a credit card after the first year can be a complicated decision. However, thinking about all of the benefits the card offers can be a deciding factor. Ultimately, however, you’ll want to be sure you’re still earning points or miles for every purchase you make.

Featured image by Liam Spencer / The Points Guy

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.