Credit Cards

When Calculating An Annual Fee Doesn’t Add Up

Amazon blues
Written by Dustin

With the credit cards with higher annual fees receiving more attention, I think we are need to look at how we re-evaluate how we are calculating the annual fee.

Over the last couple of years, we have seen the higher annual fees get more coverage. There’s the American Express Platinum, Citi Prestige, and the newest addition to the list the Chase Sapphire Reserve (I think it is a weak name, personally). The benefits (currently) on these cards are fantastic, and the annual fee can easily be justified (at least for year 1).

These cards come with some pretty great features:
  • Lounge Access
  • Airline Credits
  • Travel Insurace
  • Global Entry/ TSA Pre-Check
  • Bonuses worth hundreds to thousands of dollars.
  • Status with car rentals
  • Higher earnings on select bonus categories
  • And a whole laundry list of other perks that make most in the travel community drool all over their keyboards

These benefits come with a price tag from $350-$450, not including authorized users. Not a small price to pay for a credit card, but for some it is well worth the price.

The issue I have been seeing more of, is the incorrect math when it comes to calculating the annual fee of a premium credit card. I’ll explain soon.

I have absolutely nothing against paying an annual fee, especially when the benefits outweight the cost. It can actually be well worth paying the annual fee on some credit cards. 

My current annual fee collection

My current annual fee collection

I currently have a few in my collection:
  • Chase IHG x2-v$49 x2 (Keeper)
  • Chase Hyatt- $75 (Keeper)
  • Chase Sapphire Preferred- $95 (I’m on the fence, but will probably keep for Hyatt transfers)
  • American Express Everyday Preferred (My go to card currently)- $95 (Keeper)
  • American Express Delta Gold (currently waived, but considering keeping for the benefits)-$95, waived for first year
  • American Express Green Card (will cancel)- $95, wavied for first year
  • Capital One Venture x2 (will cancel)- $59 x 2- waived for first year

The cards I plan to keep total $363 to $458 (counting Delta card) per year. To me, as long as the benefits outweigh the cost (especially the hotel cards), they will have a place in my wallet.

Back to my issue with calculating annual fees, using those airline credits…

The higher annual fee cards come with these “awesome” Airline credits:

It is nice that the banks are reimbursing you, especially if you were going to spend the money anyways, but…..

What I am seeing is people directly subtracting the airline credit from the annual fee, which does not equate to me. For example, I was reading a few blogs the other day about the Chase Sapphire Reserve, which said they annual fee was $150 for the year after you take into account the airline credit. I completely disagree with this.

The airline credit is independent of the annual fee. Someone receiving the airline credit is equal to the amount of money spent on travel, not related to the annual fee.

If you received an annual fee credit for spending a certain amount of money in a year, that could be counted to reducing your annual fee. For the example below, I used $20,000 as amount to spend.

You will get 2 airline credits during year 1, so in that aspect, I fully understand you make a little bit of money. Well, only with Prestige and Sapphire Reserve, not American Express. That’s not what I am talking about in calculating the annual fee.

So let’s use the Chase Sapphire Reserve (since it has been blowing up my Twitter feed) as our example for this math.

Chase Sapphire Reserve

The current flavor of the week

In order to receive this airline credit, you need to actually spend $300 on the airline/hotel (there’s even reports of it working on Radpad) to receive your credit. If you don’t spend money on the airline, you do not get your credit. This might pay for your airline ticket you were going to pay for anyways, but this does not change the annual fee. 

To me, your airline credit is nothing more than prepaying your own travel and Chase returning that portion back to you. Think of it as a free 900 Ultimate Reward points (at most), since Chase reimburses you for your purchase, up to $300.

Take this example, if you paid for your friends lunch, and in a week they paid you back, you woudn’t say you had your lunch paid for, right? You still paid for yours, but hopefully earned some extra points :-).

So the math really breaks down like this:

  • $450 for annual fee +[($0-$300 on Airline) – ($0- $300 airline credit)] = $450.

It does not break down like this:

  • $450 for annual fee – ($0-300 airline credit) = $150

If you were to have an annual fee credit, as mentioned above, it would look like this:

  • [$450 for annual fee – ($300 if spending is greater than or equal to $20,000)] + [($0-$300 on Airline)- ($0-$300 airline credit)] = $150, only if spending $20,000 or more. 

Even if you buy a gift card for the future use, this doesn’t discount the annual fee. You still pay $450 for the card, end of story. 

I understand you can liquidate the gift cards for cash, and Doctor of Credit even had a post outlining this. In that case, yes that does lower the annual fee. I assume for most who were approved for the card they’ll use the credit for themselves. 

Now let’s add the fact you have to PAY for an authorized user, this adds even more to your yearly cost. I don’t know about you, but my wife and I are authorized users on each accounts. This helps us hit bonuses quicker, since we do not MS.  

Authorized User Fees:
  • American Express Platinum- $175 for up to 3 users
  • Citi Prestige- $50 for each user
  • Chase Sapphire Reserve- $75 for each user

Even adding just one Authorized user on your account and that adds even more to your annual fee. That $450 annual fee just became a $525 annual fee (if you add 1 AU). I think you should get 1 free authorized user when you pay this high of an annual fee, but banks do not ask me for my opinion. 

At the end of the day, with whatever credits you receive from the bank, you will have paid $450 for the Chase Sapphire Reserve, $450 for the American Express Platinum, and $350/$450 for the Citi Prestige.


These premium cards come with a lot of benefits, that can easily justify the high annual fees. The lounge access alone could be worth it for some, especially if they are in airports frequently. The airline credit is a great feature of these cards, they help reduce your cost of traveling, but they do not reduce the amount of money spent on the annual fee.

Do you agree with me that airline credits do not reduce the annual fee? How do you calculate your cost on annual fees?

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About the author


After completing 6 years of pharmacy school, I finally had the time to travel. I started investigating ways to travel for less and when I redeemed my first award flight for my honeymoon, I knew I was hooked! Fast forward a couple of years and places I had never dreamed of visiting like Budapest, Honolulu, Bermuda and many other places where all within my reach, and for little to no money out of my pocket. Now, I have collected well over a million points and miles, and try to help people travel for less on their wallet.


  • I have to disagree. I travel for work and this is reimbursed to me so the credit that I receive from the credit card is cash to offset the fee.

    • Hey Carlos,

      Thanks for reading. If your employer is paying it, then sure we can agree on that.

      But if you’re paying it, they are simply putting the money back in your pocket.

      Thank again for reading!

      • If I have $450 to spend this year and I know I’m going to need a $300 plane ticket, I can either buy the ticket and have $150 left… Or I can pay the $450 for the card, buy the plane ticket and have zero. This means that the card did indeed cost me just $150 (that’s all the money I had available if I bought the plane ticket. I don’t know why you don’t see it this way

  • I disagree, as I would have spent the $300 and now I’m only spending a net of $150. Also I believe CSR gives credit for any travel, not just airfares.

    • Hey Ira,

      Yes, I must have written airline, but gave examples with it working with hotels, etc. good catch!

      We will just have to agree to disagree on this :-).

      Thanks for reading!

    • Hi SinoSoul,

      Why would I deduct the $95 for GE? You paid for it and they give you the money back.

      Let’s say you had GE from another CC, the $95 fee doesn’t come off unless you spend $95 on GE. You don’t spend, no credit.

      They don’t give you $95. Just simply reimbursing you for the money you spent.

      Thanks for reading!

  • If I assume that the $300 is money I would spend on travel anyway (in my case it certainly is), then yes it offsets the fee.

    Let’s say I have $1000 in my checking account and I buy a $300 plane ticket with my debit card. OK, now I have $700. Now let’s say instead I get the CSR and buy the plane ticket with it. After paying the bill and getting the credit I have $550 left, which is $150 less than I would have had in the debit card case. The effective cost of the CSR is $150. (Actually compared to the debit card case it’s $141 since I also got 900 UR points worth a minimum of $9 for the purchase.)

    Now I know that there are people who do a lot of MS and pay for all (or substantially all) their travel with miles, so maybe that’s not how the math works for them. But it is how it works for me, because I have far more than $300 of travel expenses in a year.

    • Hi dbeach,

      i agree, the people who MS have a whole different idea of how they value points since they buy them so cheap.

      Thanks for reading!

  • Have to agree to disagree on this as well, but I understand your point. Maybe it is just the accountant in me that views everything from an Asset/Liability point of view… While the CSR has a $450 fee (liability), it also provides me with a $300 travel credit (asset). While this $300 asset is not liquid cash, it is very very close to cash given the transactions that trigger the credit – like Uber, Uber EATS, and of course flights/hotels. So I would agree that the view should not be that my annual fee is not $150, but I disagree that these are completely separable and instead should be looked at with a net asset view – leaving me with net assets of ($150) rather than ($450). At least that is how I see it!

    Appreciate the thought provoking post!

    • Hey Derek,

      Thanks for the comment. I can see your viewpoint. It seems we have some overlapping agreement :-).

      Thanks for reading!

  • Let’s use your lunch scenario.
    Let’s say I go out to eat lunch with my friends and the total bill is $450 and I pick up the whole check. Then in the next several months every time I go out to eat with those same friends another one picks up the check until the total amount of meals of mine equals $300, I would calculate that first meal costing me $150. Of course you pay up front, but if you can front the money for something you’d be paying for anyway it’s not a big deal.

    • Hey Dan,

      Thanks for the comment. At the end of the day, how much money came out of your checking account? That’s what I’m going off of.

      Thanks for reading!

  • Hi there

    You have two IHG cards in your name – did not know this was possible – do you get two free IHG nights to your account then?

    • Hey Doog,

      One of them is my wife’s, just like the Venture Card. It would be awesome to have multiple though! We do get 2 nights on our account, for a grand total of $98, not free ;-).

      Thanks for reading,

  • Hi Dustin –
    I appreciate your point, and I agree that too many bloggers have been automatically doing the math as if spending an extra $300 actually offsets the $450 fee, as if you then spent a total of only $150, rather than $450.
    But, even beyond Carlos’ good point, if you are actually expecting to travel anyway – it’s a fixed cost for your employment, whether reimbursed or not – then you already know you have to spend X in a given year. If you get the CSR and use it, then you will actually pay X + $150 in a year.
    You point is solid when we’re talking about elective travel, travel you wouldn’t otherwise engage in for recreation. But when it’s a matter of fixed expense, it works out differently.

    • Hey Jason,

      Thanks for the comment.

      Great points! I was taking it from view of elective travel, always great to get readers viewpoints! So many ways people look at things!

      Thanks for reading, I appreciate it!

  • Agree.

    Even if i know i need to spend 300 on travel. I get 300 back. But i still have spend it. But i do have the card and a flight orso.

    It then fully depends on the other benefits.

    So you have a flight and card for 450.
    But otherwise you would have just a flight for 300.

    I wouldnt buy a 300 credit for 450. Must look at the other benefits then.

    • Hi Chris,

      I agree 100%, it does come down to the benefits.

      Spending $450 for the airline credit is a poor investment since you are spending more money than had you just paid for flight.

      Thanks for reading!

  • Dustin —
    I agree with you wholeheartedly. Here’s another way to look at it. A Target store has a deal where you buy two products from a list of items and in return you get a $5 gift card. Let’s say I buy two items that total $20.00. I get the $5 gift card which would in theory make the purchase a 20% discount. But Target doesn’t allow me to use that gift card on that purchase. I have to do it on the next purchase. As a result, I have to buy more from Target to use the gift card. So Target has “forced” me to buy more stuff from them than I might have by giving me a gift card. It’s their way of getting customers to spend more. All psychological. The credit cards are doing the same thing. You’re paying the annual fee outright. The $300 flight credit is a gift card it issues to you to purchase more items on the card. It is not applied to the annual free — just like the Target gift card is not applied to the purchase which got you the gift card.

    • Hi Andre,

      An amazing analogy. It is psychological and when people are being told this card is “only $150 after airline credit,’ I feel they are really being mislead. The credit card companies aren’t giving this credit out, from the goodness of their heart. They know people will miscalculate the cost of this card.

      Thanks for reading, Andre! I appreciate it!

      • A more apt analogy would be if Target offered a $10 gift certificate for $5 (a la Groupon). A savvy customer would only buy the gift certificate if he/she expects to spend at least $5 at Target. If you bought a gift certificate so you could buy a $20 item, you wouldn’t say you paid $20 for it, you would say you paid $20 + $5 – $10 = $15 for it with the gift certificate, because only $15 dollars ended up coming out of your pocket. Same thing with the annual travel credit. Many applicants already know they’re going to spend at least $300, so the net amount coming out of their pocket is $150. It’s possible there are some who weren’t planning to spend $300 and are now “compelled” to spend $300, but it’s unlikely they’re reading this website.

        • David —
          Your “apt” analogy doesn’t apply to credit cards. If you’re paying $5 for a $10 gift certificate, any purchase above $10 actually decreases the value of your initial buy. If you buy $10 worth of items, you’ve saved 50%. So anything above that lowers your savings. That means buying $20 worth of goods for that $5 knocks down your savings to just over 20%. Plus, that $5 is not considered a fee. It’s considered a “loss leader” in order to get you to buy more Target goods because Groupon conned you into believing getting a $10 gift certificate for $5 was a good deal. Groupon makes money because it gets a small cut of every $5 buy (via volume). And Target gets customers to buy more because the buyer believes s/he is getting a deal. So your analogy isn’t “apt” in this case.

      • Nowhere on the Chase advertisements have I seen Chase say this is a $150 annual fee…not even with an asterisk stating “after $300 credit”.

        You only see this from the bloggers…and even they point out that it’s a $300 travel credit. I disagree people are being misled.

  • I disagree completely. I know for a fact that I am going to spend thousands each year on travel. Chase is going to give me $300 of that back annually when I pay using CSR. I am receiving $300 back that I would otherwise have spent. This directly offsets the AF making it $150 for a card with lounge access, great bonus earning potential and excellent ancillary benefits and protections. As is I will be holding this card, great value.

    • Hey Tom,

      We will have to agree to disagree about the airline credit and annual fee.

      I will agree you are spending $450 for great benefits, currently.

      I wouldn’t be surprised to see some changes in about a year. Card is just too rich in benefits.

      Thanks for reading Tom! I appreciate it!


  • Have to agree with all the other posters and disagree with you.

    $450 annual fee, less the $300 credit for money I would spend ANYWAY – makes the NET cost of having this card in my pocket $150.


    • Hey Tim,

      Like the others, we shall have to agree to disagree :-).

      Thanks for reading! I appreciate it!


      • No, we shall not have to agree to disagree :-/. You are simply wrong…just like the equation (450 – 300 = 450) is wrong.

        The only way you have any type of argument is with the assumption that the card holder will not already be spending $300 in the travel category. But, this is an invalid assumption because what non-traveler would be interested in this “travel card”. Not to mention, why would they be reading your blog?

        So, the reality is, the effective annual fee, excluding the value of the bonus points, is $150.

        And, for the first year, there is the argument that IF you were going to buy Global Entry anyway, than that fee is reduced by another $95….not to mention if you were buying Priority Club membership…but, let’s not get this too confusing.

        Given the assumption that people who spend in the Travel Category are the ones interested in this card, an argument can even be made that in the first year of having this card, they actually earn $150. If the cardholder is already going to spend $300 in travel before December 2016, then $300 in travel before the 2017 annual fee hits, that’s $600 in travel credits for one $450 fee.

        • Hi Greg,

          We can certaining agree on a few things.


          We shall have to agree to disagree 🙂

          Thanks for reading, I do appreciate it!


          • Really? Ok, Let me blow your mind a little with so more with what I’m sure you consider “fuzzy math”.

            I currently have the CSP and believe it’s worth it to pay the $95 annual fee to have the card. So, for me, the incremental cost of upgrading to the far superior CSR card is $55. As such, I consider the annual fee to have the CSR is $55.

          • Hi, Greg, thanks for adding to the discussion. While I actually look at this annual fee as a net $55 over my CSP as well because of my travel habits (I had spent the $300 for the travel credit in 1 week of having the card!) I was happy to have Dustin write this post because I do believe it is important to look at things from different perspectives.
            One thing I do disagree on with you is that people are going to use the travel credit as a no-brainer (check this post I wrote yesterday about the popularity of the CSR for more on that). I have heard many people getting this card to get it for “$1,000 in gift cards!” and not really even thinking about the travel credit. This is really the first high-fee credit card that has garnered this much mainstream attention and many of the newcomers are looking at the points and not necessarily the travel credit. I have even been trying to help some people to use it for things other than what they were considering as they were planning “big” trips in order to “spend” the free $300 – but it was costing them more in the extras than they were getting from the benefit! So, while most of us will get the $300 as a net against the annual fee, it is good to have another perspective as well which is why I was fine with Dustin making this post.
            Thanks for reading and adding to the discussion!