Note: This is part of our series on credit card rewards traps. Check the end of this article for links to more pitfalls.
Survived the disappearing act? Fantastic!
But hold tight, because annual fees can still catch you sleeping. Paying for rewards you never use is the ultimate self-sabotage—exactly what banks count on.
Rewards cards often come in two flavors: the no-annual-fee workhorses with decent rewards, and the premium cards with hefty annual fees but loads of perks (free airport lounge visits, credits for this and that, elite status upgrades, etc.). Issuers love annual fees because it’s money in their pocket regardless of whether you use the card. The motivation here is to entice you with a fancy package of benefits – often truly valuable if maximized – knowing that a good chunk of cardholders won’t fully utilize them. That unused value = profit for the issuer.
How it works:
Let’s say there’s a Travel Elite Ultra card with a $550 annual fee. In exchange you get a $300 travel credit (but only for certain airlines), airport lounge access (but you have to enroll and maybe you don’t travel as much as you thought), TSA PreCheck fee reimbursement, and a bunch of points. Year 1 feels worth it because often there’s a big sign-up bonus that offsets the fee. Year 2 rolls around – that $550 hits your statement. Do you cancel? The banks are betting you won’t. Maybe you forgot to cancel in time, or you feel a bit of FOMO: “I might travel this year and use the lounge.” Many people keep paying fees even if they didn’t use the perks as intended. Banks also sometimes dangle retention offers (small bonus to keep you paying the fee), which psychologically convinces you the card is still worth it.
Issuers implement these products with breakage in mind. For instance, the card might offer “$15 in Uber credits each month” – sounds like $180 value per year, which justifies a chunk of the fee. But if you forget to use a month’s credit, it doesn’t roll over. Plenty of users never bother to use all those monthly or annual credits (or use them in suboptimal ways). Another example: free checked bags on an airline – valuable if you fly often, worthless if you rarely do. Yet a retiree couple might keep a premium airline card “just in case” they fly once a year, paying $99 every year to save $60 in bag fees on that one trip. That’s a net loss, but the idea of the perk kept them subscribed.
Why it’s overlooked:
Optimism and inertia. When signing up, we overestimate how much we’ll utilize benefits. (“Of course I’ll go to the airport lounge every time I fly!” or “I’ll definitely use those $25 dining credits each quarter.”) In reality, life gets in the way, or the perk isn’t as convenient as it sounded. And once you have the card, canceling it might seem like a hassle or you worry it could hurt your credit score (closing accounts can have a minor impact, though usually not huge if you have other credit). So you end up paying the fee again “to see if I use it more this year.” This can particularly hit frequent travelers or aspirational ones – people who got the card thinking they’d travel a lot, then maybe travel patterns change. Retirees might sign up for a premium card for a big trip, then not travel as much later but keep the card because it’s prestigious or they simply forget to cancel. College students or low-income folks usually avoid high-fee cards (or can’t get approved), but there are even mid-tier cards ($95/year) that promise higher cashback on categories. Those can be a trap if the person’s spending in those categories doesn’t actually justify the fee. For instance, if you pay $95 to get a grocery card that gives 6% back on groceries, but you spend very little on groceries, you might earn only $50 in cashback – you’d be better off with a no-fee 2% card.
Example scenario: I knew a young professional who got a premium travel card because it advertised flashy perks like a free hotel night and airport lounge access. Two years in, he realized he had never once visited a lounge (he was always traveling with family who didn’t have access, so he skipped it), and the “free hotel night” went unused because it had date restrictions. He basically donated $450 in fees for perks he didn’t actually use. He’s not alone – card issuers count on this inertia. They even have internal estimates for breakage on benefits (they know not every cardholder will max out that $300 travel credit, for example).
To avoid this trap: do a frank audit of your card benefits vs. usage each year. If you’re not using it, consider downgrading to a no-fee version if available. There’s no shame in admitting a premium card isn’t worth it for you – despite how prestigious the metal card might feel. And if you do keep a premium card, put reminders in your calendar to use those credits and perks. After all, you paid for them! As a wise saying in personal finance goes: “The only person who truly gets free travel from a $500-a-year card is the one who squeezes every last drop of value out of it; otherwise, the free trip is partly coming out of your own pocket.”
Hungry for more insider secrets? Explore all the hidden traps banks don’t want you to find out about.
- Think You’re Winning at Credit Card Rewards? You Might Already Be Trapped
- Excited by Credit Card Sign-Up Bonuses? Beware the Bait-and-Switch (Trap 2)
- Confused by Complex Credit Card Rewards? That’s Exactly What Banks Want (Trap 3)
- Think Your Credit Card Rewards Are Safe? Banks Count on You Forgetting (Trap 4)
- Watching Your Credit Card Points Vanish? Here’s Why They’re Disappearing (Trap 5)
- Paying Annual Fees for Credit Card Perks? You Might Be Throwing Money Away (Trap 6)
- Tempted by Store Credit Card Rewards? Watch Out for Sky-High Interest (Trap 7)