# Should I Get a Credit Card with an Annual Fee?

When it comes to choosing a new credit card, one of the first questions many Canadians should ask themselves is: should I get a credit card with an annual fee? The short answer: it depends.

If you’re someone who typically carries a balance on your card, the rewards you receive for your spending may not outweigh the annual fee (and interest charges) – so the answer is probably no (unless the fee gives you a lower interest rate). However, if you always pay off your full balance at the end of each month (and, therefore, incur no interest charges), then it could be worth it to get a rewards credit card with an annual fee.

The question of whether you should get a credit card with an annual fee really depends on how much money you spend on your card each month. We find it’s best to compare annual fee credit cards to similar no fee credit cards, to see how the rewards stack up against each other. To show you an example, let’s compare a no fee travel rewards credit card with one of the top travel rewards credit cards in Canada.

First things first, to simply cover the cost of the annual fee on the BMO World Elite MasterCard (\$150), you need to accumulate 15,000 points. Since each \$1 spent rewards you with 2 points, you would need to spend \$7,500/year on the card to breakeven. But let’s go further and look at how much you would need to spend, in order for it to make sense to get the BMO World Elite MasterCard over the American Express Blue Sky Card (\$0).

If you spend \$1,000/month on your credit card, which card should you get?

American Express Blue Sky Card

Total Points: \$12,000 (annual spending) x 1.25 = 15,000 points
Value: 15,000 points = \$150
Net Gain: \$150

BMO World Elite MasterCard

Total Points: \$12,000 (yearly spending) x 2 = 24,000 points
Value: 24,000 points = \$240
Net Gain: \$240 – \$150 (annual fee) = \$90

If you only spend \$1,000/month on your credit card, it’s more cost-effective for you to use the American Express Blue Sky Card.

If you spend \$1,500/month on your credit card, which card should you get?

American Express Blue Sky Card

Total Points: \$18,000 (annual spending) x 1.25 = 22,500 points
Value: 22,500 points = \$225
Net Gain: \$225

BMO World Elite MasterCard

Total Points: \$18,000 (annual spending) x 2 = 36,000 points
Value: 36,000 points = \$360
Net Gain: \$360 – \$150 (annual fee) = \$210

If you spend \$1,500/month on your credit card, it’s still more cost-effective for you to use the American Express Blue Sky Card.

If you spend \$2,000/month on your credit card, which card should you get?

American Express Blue Sky Card

Total Points: \$24,000 (annual spending) x 1.25 = 30,000 points
Value: 30,000 points = \$300
Net Gain: \$300

BMO World Elite MasterCard

Total Points: \$24,000 (annual spending) x 2 = 48,000 points
Value: 48,000 points = \$480
Net Gain: \$480 – \$150 (annual fee) = \$330

Finally, if you spend \$2,000+/month on your credit card, the BMO World Elite MasterCard is the better choice of the two.

Before signing up for a credit card with an annual fee, it’s in your best interest to know how much you currently spend on all major categories of your budget. You can enter this information into our credit card comparison tool, to find out which credit cards will best serve your needs and give you the most rewards for your personalized spending habits.

Flickr: Flood G