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Why it can be worth paying an annual fee for a miles and points credit card

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I get numerous emails from Head for Points readers asking for advice on which miles and points credit card they should get.  These often come with the caveat “but I don’t want to pay a fee for a card”.

I don’t agree with this approach.  Let me explain why.

Most credit cards in the UK do not carry an annual fee.  It is very likely, before you became interested in miles and points, that you had never paid a fee for a credit card in your life.

I can see why you wouldn’t want to.  You know that the card company gets a cut from the retailer every time you buy something.  You know that they add a 3% foreign exchange fee whenever you spend abroad, and whenever you end up withdrawing some cash on it (which, however much you try to avoid it, always happens once or twice a year).  You may accidentally miss a payment date occasionally and run up some interest.  Paying for the privilege of generating this revenue for the credit card company seems wrong.

I think you need to look at it differently.  Forget that you are paying for a credit card.  Look at it as simply paying for the benefits offered.

Should you pay a fee for a credit card?

Taking the British Airways Premium Plus card as an example

Some people take one look at the £195 annual fee on the British Airways American Express Premium Plus credit card and are put off instantly.

Purely from the point of view of the sign-up bonus, being put off by the fee is a mistake, of course.  The card is currently offering 25,000 Avios for signing up when you spend £3,000 within 90 days.  The majority of Head for Points readers would jump at the chance of buying 25,000 Avios for £195 which is basically what you are doing.

The fee becomes even more realistic when you look at the 2-4-1 voucher:

Would you pay £195 to buy a voucher which allowed you to get two Avios redemptions (BA planes only) for the miles of one?  This would save you 180,000 Avios on two Club World tickets to Tokyo for example.

This is clearly a ‘no brainer’ for anyone who understands the value of Avios.  180,000 Avios are worth at least £1,800 if used sensibly.  More importantly, if you wouldn’t otherwise be able to earn enough Avios for two Club World tickets to Tokyo, it lets you undertake a trip that would otherwise be impossible.

You need to spend £10,000 to trigger the voucher each year, of course, but you need to channel your credit card spend somewhere anyway.  The £195 fee also lets you earn 50% more Avios on every purchase – 1.5 per £1 – compared to the free British Airways American Express card and you get a 2-4-1 voucher valid for two years rather than one year.

If you think that spending £10,000 on an American Express card in a year is tricky, don’t forget about BillhopWe covered this service again a couple of weeks ago – it allows you to pay any household bill (not a mortgage or credit card) with an Amex card in return for a fee.  This is a good way of running up a few thousand pounds of Amex spend if you are short of £10,000.

Should you pay an annual fee for a credit card?

And some other examples …..

Here are some other examples where, if you treat the fee as paying for a benefits package, it makes sense:

Would you pay £99 per year for Platinum status (2nd tier) in IHG Rewards Club – which usually needs $4,000 of ex-VAT hotel spending – plus a free night in any of their hotels, potentially worth £250+? Especially if you got £100-worth of IHG Rewards Club points in the first year you signed up?

When you put it like that, the IHG Rewards Club Premium Mastercard sounds like a good deal.  You need to spend £10,000 per year to trigger the free night, but you need to put your credit card spend somewhere.

Would you pay £140 per year for the right to upgrade two Virgin Atlantic economy redemptions to premium economy, or to get a 2-4-1 voucher on economy redemptions?  Especially if you also got 15,000 Virgin Flying Club miles in the first year for signing up?

When you put it like that, the Virgin Reward+ Mastercard looks good value (you need to spend £10,000 to trigger the two vouchers).  That’s before you factor in the excellent ‘1.5 miles per £1’ earning rate.

Would you pay £575 per year to get travel insurance for your family and five other nominated people under 70 years old, car hire insurance, Hilton Gold, Marriott Gold, Radisson Rewards Gold, Shangri-La Jade, Melia Gold, Eurostar lounge access, Delta lounge access, two Priority Pass cards each admitting two people for free to 1000 airport lounges, and exclusive benefits at luxury hotels including guaranteed 4pm check-out?  Especially if you got 30,000 Avios or other miles in your first year?

This is clearly more of a ‘heavy hitters’ package, but the American Express Platinum charge card will give you all of the above.

Is it worth paying a fee for a credit card?

Not all credit cards justify their fee …..

I don’t want to suggest that all fee-bearing miles and points cards justify the annual fee.

American Express Preferred Rewards Gold is harder to justify after the free first year.  You are paying £140 from year 2, with the main benefit being two free airport lounge passes.  It might work if you spend £15,000 to trigger the annual bonus of 10,000 Membership Rewards Points, but I would consider it marginal.

The Lufthansa Miles & More Diners Club and Mastercard has a £79 fee.  For the first year it is worth it for the 10,000 miles sign-up bonus.  After that, even the strong earning rate of 1.25 miles per £1 doesn’t justify the fee unless you are spending a chunky sum each year.  For many people the only reason for paying £79 is that having this card, and using it once per month, stops your Miles & More miles expiring.

The Starwood Preferred Guest American Express card has a £75 fee.  Similarly, for the first year it is worth it for the 30,000 Marriott Bonvoy points sign-up bonus.  Even at 3 Marriott Bonvoy points per £1, however, you need to a big spender to justify £75 for Year 2+.

However, if you can get your head around the concept of paying an annual fee, you will find that many miles and points card do offer value for money.

Should you pay an annual fee for a credit card?

Learn more about the credit cards mentioned above

Here is the legally required interest rate information on the credit cards mentioned above, together with links to our detailed reviews:

American Express Preferred Rewards Gold – sign-up bonus of 10,000 Membership Rewards points when you spend £3,000 in three months – apply hereour American Express Gold review is here – representative APR 57.6% variable including fee (free in year 1) based on a notional £1200 credit limit, interest rate on purchases 22.9% variable

The Platinum Card from American Express – sign-up bonus of 30,000 Membership Rewards points when you spend £4,000 in three months – apply hereour American Express Platinum review is here – this is a charge card which must be repaid in full each month

British Airways American Express – sign-up bonus of 5,000 Avios when you spend £1,000 in three months – apply hereour BA Amex review is here – representative APR 22.9% variable

British Airways American Express Premium Plus – sign-up bonus of 25,000 Avios when you spend £3,000 in three months – apply hereour BA Amex Premium Plus review is here – representative APR 76.0% variable including fee based on a notional £1200 credit limit, interest rate on purchases 22.9% variable

Starwood Preferred Guest American Express – sign-up bonus of 30,000 Marriott Bonvoy points when you spend £1,000 in three months – apply hereour Starwood Amex review is here –  representative APR 39.7% variable including fee based on a notional £1200 credit limit, interest rate on purchases 22.9% variable

Virgin Atlantic Reward+ Mastercard – sign-up bonus of 15,000 Virgin Flying Club miles after your first purchase – apply hereour Virgin Atlantic Reward+ review is here – representative APR 63.9% variable including fee based on a notional £1200 credit limit, interest rate on purchases 22.9% variable

Miles & More Global Traveller Diners Club and Mastercard – sign-up bonus of 10,000 Miles & More miles after your first purchase – apply here – our Miles & More Traveller review is here – this is a charge card and your balance must be cleared in full each month

Disclaimer: Head for Points is a journalistic website. Nothing here should be construed as financial advice, and it is your own responsibility to ensure that any product is right for your circumstances. Recommendations are based primarily on the ability to earn miles and points and do not consider interest rates, service levels or any impact on your credit history.  By recommending credit cards on this site, I am – technically – acting as a credit broker.  Robert Burgess, trading as Head for Points, is regulated and authorised by the Financial Conduct Authority to act as a credit broker.

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Comments

  1. Jonathan says:

    If I cancel my BA Amex card paying the balance off, do I still receive the Avios points I’m due that would otherwise be transferred 3 weeks later?

    Thanks.

    • Shoestring says:

      wait until the points get transferred, otherwise you’ll probably lose them

      obvs if you have the BAPP fee to pay, not always worth waiting for a handful of points at the end of the month

    • The Urbanite says:

      The Avios get trapped. You can sort of see them in the Amex app if you know where to look but you’d need to call Amex to get them to push them through to your BAEC account.

  2. Shoestring says:

    the thing about wondering whether to go for the class action suit vs BA was just me thinking: well, I haven’t actually lost a penny yet, have I ducks?

    ducks say: no, not even a penny, quack quack

    so why should I sue BA for the stress & worry of not losing a penny, which Amex already said don’t worry about as we’ll refund you in full?

    very stressed, very worried of course, ooh it’s causing me sleepless nights

    • Matthew says:

      It’s not just your Amex details. Didn’t they have enough personal info to potentially use for new credit applications or used fraudulently and steal your identity. Hence why BA offered 12 months identitfy protection….

    • Lady London says:

      you don’t lose anything by signing up, though, do you, the Great Shoestring?

      And as the other poster above says, people are only just discovering over time all the new ways in which their card details (and who knows what other personal details British Airways may have leaked) may be being used in the future.

      So you lose nothing by signing up now just in case?

      My worry about this one is that British Airways got royally sued very recently in a class action in the US. This was due, I believe, to British Airways continuing to charge large amounts of so-called fuel surcharges on tickets, for many years longer than the money was actually needed for fuel surcharges. British Airways lost the case BUT somehow n the US class action, so far as I am aware, British Airways got away with printing a few avios and handing them out to the plaintiffs as settlement. So, no money. And those who joined the US class action got paid in a currency (avios)_ which has been compared to that of a banana republic.

      So you might get £100 The Great Shoestring, you might be a decent amount instead, or you could find the case settling for a small handful of avios.

  3. Sam Wardill says:

    Billhop are greedy. What we need is a service that allows you to pay bills are just above the interchange rate

    • That only works if the company running it can accept cards at interchange, which is unlikely. And what happens when someone turns up with an Amex Gold (1.7% ish) vs BA Amex (0.3%)? I doubt they are making a fortune given that it is a fsirly manual process.

  4. Had the IHG card since Jan. £99 for the card and am already on my 5th reward booking. I have easily saved £100s even with the initial outlay

  5. Peter Carter says:

    Recently switched from Lloyds Bank Premium Avios to BA Premium Am Ex and what a mistake , just had the card declined when buying 5 first class tickets on (you guessed it) British Airways!(because it was £500 over the available credit)
    Despite 6 calls at 2am to try and rectify it with offers to prepay the full amount I got nowhere and lost the whole holiday as they were the last tickets available for New Year hiloiday dates.BA Am Ex card will be cut up and returned.Their customer service is a complete joke

  6. I have a question regarding these cards.

    Last week my partner upgraded our free Ba Blue card to the Premium Plus.

    Almost immediately after requesting this we were sent a voucher for our 241 companion flight, but only valid for one year.

    The shocker was, she also got this message.
    YOU HAVE QUALIFIED FOR YOUR COMPANION VOUCHER THIS YEAR. START EARNING TO NEXT YEARS VOUCHER FROM JULY 2020

    Surely that cant be right, have we done something wrong by upgrading the cards and why can we not start earning points from time upgraded the card?

    It woudlnt have been so bad if we were sent a voucher valid for 2 yrs, but its the standard blue 1 yr voucher. The BA blue year would had renewed from this September.

    Any help and advice please?

    • The voucher should be 2 years and this gets amended if you chase them. It is correct that it is issued now. Your membership year remains the same if you upgrade or downgrade, so as you’ve already spent £10k this year it is triggered.

      A lot of people love this feature – get the free card, spend close to £10k, upgrade, trigger the voucher, downgrade – because they pay virtually nothing in BAPP fees.

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