I admit it. I have a problem.
I’ve got an American Express Platinum card. I paid the $450 annual fee. Yes, I can get that back in various credits for the first year. But it’s still $450.
I’ve also got a Citi Thank You Prestige card. I paid the $400 annual fee. Yes, I can get that back in various credits for the first year. But it’s still $400.
I’ve also got an Citi Executive AAdvantage card. I paid the $450 annual fee. Yes, I got back $200 for the first year, so I can knock that amount off directly. But it’s still $250.
That’s $1,100 in annual fees. For just 3 credit cards.
And those aren’t my only 3 credit cards. I’ve got a bunch more hidden in a drawer. Look under the false bottom. There. See them all?
I’ve got a problem.
While I was writing last week’s post on airport lounges, I came to a sudden realization. Why on earth do I have all these extremely expensive cards? I don’t remember agreeing to $1,100 in annual fees. How did this happen? Who talked me into it? Am I responsible for this or can I blame someone else as usual? Does spending a lot of money on annual fees somehow make me more awesome?
Am I really getting my money’s worth for these premium cards?
High annual fees… who are they good for?
Once upon a time, credit cards like the AmEx Platinum were for people with money. Real money. Not shlubs like you and me who just have a decent job and a safe apartment and a sensible car like a Porsche Boxster. Wait… you don’t have a Porsche Boxster? Well, OK, maybe that’s just me. But I live in L.A. I’m legally required to own one.
Back then if you had a Platinum card, you were somebody. You dropped that baby on the table and people noticed. Everyone in the restaurant froze and stared at you. Girls in bikinis who somehow were the only ones in the restaurant not frozen slid into the booth next to you and started toying with your hair. The waiters poured champagne into crystal glasses shaped like angry oxen and the chef came out from the kitchen to personally thank you for being an American Express Platinum cardmember and a better human being than him. You were kind of a big deal. (Note to the people at AmEx: yes, I am available for commercial writing and directing work, please inquire for my reel).
But then shlubs like you and me got tired of always being the ones frozen while that other guy got all the bikini chicks. What’s that guy got that’s better than me, anyway? A Platinum card? Well, I want one too! I want to drink champagne from angry oxen too!
AmEx realized there might be some profit in making us all feel important and started handing out Platinum cards to anyone who could convince them they weren’t going to charge a zillion dollars with it and then disappear to Mexico. We shlubs were very happy getting our fancy premium cards and AmEx was very happy collecting $400+ from each of us. Then other banks got jealous of AmEx and started doing the same. Soon enough, there were a half dozen $400+ annual fee cards floating around and a lot of very tired girls in bikinis.
But let’s be honest — these cards are still designed for folks with lots of disposable income. Just look at some of the perks. Private jet subscriptions? Limousine programs? Luxury cruises? They’re for people for whom money is no object. I don’t know about you, but for me, money is still an object. A very desirable object.
Exchanging cash for less valuable kinda cash-equivalents
Conventional Wisdom says these high annual fee cards are worth the money because of all the valuable benefits. Besides, you can get back practically your entire annual fee in the first year from just the airline fee credits alone.
Let’s take a close look at those airline fee credits. On the AmEx Platinum and Citi Prestige cards, we get $200 annually in airline fee credits, which for the first year can turn into $400 in airline tickets if you know what you’re doing. But whether you’re getting airline tickets or fee credits, all that means is that we’re pre-paying $400 in airline tickets or fee credits. It’s not free, it’s just returning our own annual fee money to us in a different, less useful form than cash. It also means we’re forcing ourselves to spend $400 in airline fees or airline tickets.
Now for folks who regularly travel on paid tickets not reimbursed by their company, that might be an acceptable exchange. But most people here have enough miles to travel on non-paid tickets (or we can get our costs refunded via a points currency such as Arrival points). Plus we’re giving up flexibility by locking ourselves into a specific airline for that $400, at least for the AmEx Platinum. So yes, we might “know” that we’ll use the airline fee credits or tickets, but in reality we’re exchanging a wad of unrestricted cash for restricted airline fees and/or tickets.
So what exactly do we get for our $400+ exchange?
Let’s assume for the moment that we’re willing to make that exchange. We’ll swap $400 in cash for $400 in predetermined airline fees and/or tickets so we can get the other perks of the premium credit card. What other perks are we getting that we can actually use?
Often the number one perk mentioned is airport lounge access, but we talked extensively about that one last week and found it might be somewhat lacking unless you’re a huge fan of free hummus. How about the Global Entry credit? Sure, that’s nice, but it’s only for the first year. You don’t need it beyond the first year anyway because your Global Entry acceptance is good for 5 years. Consider it a signup bonus.
How about the “concierge” service that often comes with high annual fee cards? My buddy Jimmy isn’t a miles groupie, but he has an AmEx Platinum and he and his wife use the concierge service all the time to arrange restaurant reservations at higher end places like Ruth’s Chris and the like. That’s certainly nice. I actually don’t have the heart to tell Jimmy that he can pick up the phone and call Ruth’s Chris and probably get a reservation on his own. Maybe he’s got a different deal with AmEx where they actually pay his check at Ruth’s Chris. If that were a perk, you’d have me 100% on board, but I’m not sure it’s worth $450 just to have someone make reservations for you.
What about the enhanced status for some rental car companies and hotels like Starwood? Not bad, but again you’re locking yourself into specific car and hotel companies. If you’re already a regular patron of Starwood, I suspect you already have a nice status with them and you’d be better off getting a Starwood card to augment your stays instead of an expensive premium card.
The rest of the perks — hotel and resorts programs, travel and purchase protections, access to “exclusive” experiences, and so on — often come at an additional charge on top of the membership fee, or in some cases they aren’t any different than what you can get on a non-premium card (waived foreign transaction fees, chip-enabled card, and the like). But that’s what we’re getting in exchange for committing our $400 cash to airline tickets/fees. And let’s also keep in mind that we can only make that $400 trade for the very first year.
Is it worth it? Maybe… but certainly not past the first year. Because once you hit that second year, you’re not just exchanging cash for airline tickets but actually committing at least $200 in real cash to these cards. So unless you’re using one of these perks to the tune of $200 a year (which in most cases is unlikely), the credit card company is winning. Which is, of course, their grand plan.
The Devil’s Advocate says never keep a high annual fee card after the first year. Never.
It’s not entirely fair that I’ve lumped all these high annual fee cards together. There’s some perks that vary from card to card. If you’re a golf fanatic, perhaps the “3 rounds of free golf” perk of the Citi Prestige would appeal strongly to you. Or if you’re an avid collector of Departures magazine, maybe the AmEx Platinum is worth your money after all.
I also agree that for the first year, if you can make your money back in credits that you’ll actually use, it can be fun to have a premium card if only to see what all the fuss is about. But after that first year, get rid of it. Call and cancel. You don’t need it unless you’ve got a specific ongoing use for one of the benefits that you know will save you money above and beyond the annual fee.
Instead, spend your hard-earned dollars on perks that can be acquired on a per-need basis. Pay for the lounge day pass only when you really want it. Cough up the one-time $100 Global Entry fee only when you’re ready to travel internationally. Buy Boingo access only for the one or two times that you actually need airport wifi.
And hire those bikini girls only when you absolutely need them.
Devil’s Advocate is a weekly series that deliberately argues a contrarian view on travel and loyalty programs. Sometimes the Devil’s Advocate truly believes in the counterargument. Other times he takes the opposing position just to see if the original argument holds water. But his main objective is to engage in friendly debate with the miles and points community to determine if today’s conventional wisdom is valid. You can suggest future topics by sending an email to firstname.lastname@example.org.