9 reasons you shouldn't automatically ignore a credit card just because it has an annual fee

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Not paying for things if you don't have to is both common sense and a fundamental tenet of personal finance.

At first glance, this makes credit cards with annual fees seem like a losing proposition when there are credit cards that don't have annual fees. However, an annual fee isn't necessarily a reason to turn down an otherwise compelling credit card offer - especially since in some cases, rewards, bonuses, and benefits you'll receive are worth more than the fee you'll pay.

Here are a few reasons you shouldn't automatically ignore a credit card just because it has an annual fee.

1. Significant welcome bonuses

Credit cards that offer huge welcome bonuses - think 50,000-100,000 points or more just for signing up and meeting a minimum spending requirement - are pretty much guaranteed to have an annual fee. Their no-fee counterparts typically have much smaller bonuses, if they offer anything at all.

For example, the no-fee Chase Freedom usually offers $150 in cash back (or 15,000 points) after you spend $500 on purchases in your first three months of opening an account, while the more expensive Chase Sapphire Preferred Card and Chase Sapphire Reserve each offer a bonus of 50,000 points after you spend $4,000 on purchases in the first three months.

Read more: The best credit card rewards, bonuses, and perks of 2019

2. Better rewards for spending

Cards with annual fees are generally more rewarding than their no-fee counterparts. For example, the Chase Sapphire Reserve earns 3 points per dollar spent on dining and travel, while the no-fee Chase Freedom Unlimited offers just 1.5 points per dollar spent on all your purchases.

3. No foreign transaction fees

Depending on how much you travel - and how much money you spend abroad - this could be significant. With a few exceptions, most credit cards without annual fees charge extra (around 3%) when you make a purchase in a foreign currency; these days, virtually all annual-fee cards don't have such fees (though make sure you double check to avoid a nasty surprise!).

Read more: The 5 best 'no foreign transaction fee' credit cards that will save you money on international trips

4. Extra credit card benefits

Many of the most attractive credit card benefits are only available on cards with annual fees - think free checked bags, discounts on in-flight purchases, airport lounge access, and hotel elite status.

5. Improved purchase and travel protection

Many credit cards with annual fees come with protection benefits for the things you buy with the card - extended warranties, trip delay and cancellation coverage, return protection, purchase protection, rental car insurance, and more. Many of these benefits are not available on no-annual-fee cards, or if they are they are more limited. Cards with annual fees typically have higher per-claim and annual reimbursement limits, and/or protect you for a longer period of time.

6. Travel credits can offset high fees

For premium credit cards with the highest annual fees - think $450-$550 - the actual cost often isn't as high as it first appears.

For example, the Starwood Preferred Guest® American Express Luxury Card has a $450 annual fee, but you get a $300 credit toward purchases at participating SPG and Marriott Rewards hotels every year. So if you use that credit, the annual fee is effectively $150, before accounting for other card benefits.

Similarly, the Hilton Honors Aspire Card from American Express gets you a $250 annual hotel or resort credit, a $250 airline fee credit, an annual free weekend night at any Hilton property, a $100 on-property credit any time you stay for two nights or more and book through hiltonhonorsaspirecard.com, free Hilton Honors Diamond status, and more. The first two benefits alone are worth $500, and the card's annual fee is $450 - if you just used those two benefits and nothing else, you'd already come out ahead.
The same is true for cards like the Chase Sapphire Reserve ($450 annual fee, $300 travel credit) and the Citi Prestige ($495 annual fee, $250 travel credit).

The Platinum Card® from American Express has a more diverse set of annual credits: its $550 annual fee is offset by a $200 airline fee credit, up to $200 per year in Uber credits ($15 per month January-November and $35 in December), and up to $100 in Saks Fifth Avenue credits ($50 in each half of the calendar year). So if you use all of those benefits, you're effectively paying just $50/year for everything else that comes with the AmEx Platinum!

Read more: I pay $1,000 in annual fees for the Chase Sapphire Reserve and the AmEx Platinum - and as far as I'm concerned, the math checks out

7. Anniversary rewards

Many credit cards with annual fees also offer annual bonuses that can be worth as much or more than the annual fee itself.

Hotel cards like the IHG Rewards Club Premier Credit Card and The World of Hyatt Credit Card from Chase and the Starwood Preferred Guest cards from American Express (find a breakdown of them here) give you a free night certificate every year after you pay the annual fee. Others, like the Radisson Rewards credit cards from US Bank, offer an annual rewards points bonus.

Chase and Southwest Airlines' cobranded credit cards also come with anniversary reward points ranging from 3,000 to 7,500 points depending on the card.

8. Unlock the full potential of your rewards

In addition to credit cards that earn frequent flyer miles with an airline or rewards points with a hotel loyalty program, many banks offer credit cards that earn points in their own rewards programs - Chase Ultimate Rewards, Citi ThankYou Points, and American Express Membership Rewards are the most well-known of these.

All of these programs have both annual-fee cards and no-annual-fee cards that accrue points. However, without an annual fee, you'll often find yourself unable to use your points in certain ways. For example, no-annual-fee cards from Chase like the Chase Freedom, Chase Freedom Unlimited, and Ink Business Cash Credit Card earn Chase Ultimate Rewards points, but you can't transfer those points to Chase's airline and hotel partners unless you have a card with an annual fee, like the Chase Sapphire Reserve, Chase Sapphire Preferred, or Chase Ink Business Preferred Credit Card.

9. An annual fee isn't a lifetime commitment

You can always downgrade or cancel a card in the future if the annual fee is no longer worth it. A credit card should be a mutually beneficial relationship between you and your bank. If you aren't getting enough value out of a card to justify the annual fee, call your bank and tell them - they may be able to offer you a one-time bonus (commonly referred to as a "retention offer"), or help you exchange your credit card for a different one with no annual fee.

Otherwise, you can close your account. But if you're going to do this, we recommend waiting for at least a year after you open the card. Closing a card shortly after receiving a welcome bonus makes banks less likely to give you bonuses in the future, and in some cases can even result in a reversal of the points you've already received.

The bottom line

Keep in mind that all this doesn't mean every credit card you have should have an annual fee - in fact, using a combination of cards is often the most rewarding strategy. But if you're looking to maximize the rewards you earn from your spending - and you pay off your credit cards every month - an annual fee isn't necessarily a reason to say no to a new credit card.

Click here to learn more about the AmEx Platinum from American Express from Insider Picks' partner: The Points Guy.

Click here to learn more about the Chase Sapphire Reserve from Insider Picks' partner: The Points Guy.

Click here to learn more about the Chase Sapphire Preferred from Insider Picks' partner: The Points Guy.