The travel credit card industry has been on a relentless march upward when it comes to annual fees. Just seven or eight years ago, a $450 annual fee seemed like the upper echelon of premium travel cards. Last year, we saw the Amex Platinum jump to $895. Chase followed suit with the Sapphire Reserve, climbing from $550 to $795.
Now we’re staring down cards with fees approaching $1,000 and the question becomes inevitable: would anyone actually pay $2,000 for a travel credit card? More importantly, how much will be too much and at what time will you want to jump off the premium credit card train?
Premium Credit Cards: The Annual Fee Arms Race
The annual fee arms race has also spread to co-branded credit cards. Here are a few examples.
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Delta SkyMiles Reserve American Express Card: $650
- Amex Hilton Aspire Card: $550
- Chase United Club Card: $695
- Amex Marriott Bonvoy Brilliant Card: $650
- Citi / AAdvantage Executive World Elite Mastercard: $595
From a marketing standpoint, issuers position these products as giving you a certain amount in value. However, it doesn’t factor in the time and effort you need to put in order to make sure you are able to enjoy those rebates.
Check out this post which goes exactly into that aspect. You’re getting ‘value’ fromt hat $900 annual fee card, but is there a hidden cost that you’re not taking into account?
When will you walk away?
Everyone has a number where they’d walk away, but that number varies wildly depending on your spending patterns, travel frequency and willingness to manage multiple credits throughout the year.
For some, $895 is already way too much. For others who maximize every benefit, even a $1,000 annual fee could pencil out. But $2,000? That’s entering territory where you’re essentially prepaying for a significant chunk of actual travel expenses up front, hoping the rewards and benefits you earn from the card exceed in terms of the perceived value you’re deriving in comparison to the fee you’ve already paid.
Card Issuers Will Keep Testing the Limits
I won’t be surprised if credit card companies continue pushing the envelope. They’ve learned that a significant segment of consumers will absorb fee increases as long as the perceived value keeps pace. The strategy is predictable:
- Increase the annual fee
- Add a few hundred dollars in new credits (that require you to spend money to access)
- Split the credits across different time frames and brands
- Watch renewal rates and adjust
Issuers have a ton of data about our spending patterns and if they think it’s good business to keep going, they’ll keep going. They know exactly how many people cancel versus how much additional revenue they generate from those who stay. Right now, the math seems to be clearly favoring higher fees.
Competing for Share of Wallet
When premium credit cards were still charging fees in the $450 range, it wasn’t that big a deal to carry two or more premium credit cards in your wallet. However, with annual fees reaching almost $1,000, it has become even less pragmatic to justify carrying two or more such cards in your wallet. Also, given how the credits and benefits across these cards are now split across different time frames and brands, the last thing you’d want to do is pay $2k or $3k upfront and keep running around all year to extract ‘value’ from the cards.
With very high annual fees, for most customers, issuers are ensuring that customers choose one premium card over the other.
The Pundit’s Mantra
Would I personally pay $2,000 for a travel credit card? Not today. But I also said I’d never pay $895 for the Amex Platinum, but here we are.
The industry is clearly heading toward ultra-premium tiers that make today’s top cards look quaint. We’ll probably see a $1,000+ card in the next couple years from a major issuer, testing whether there’s a market for truly luxury financial products. Some people will pay it. Some will justify it, while others will shake their heads and stick with their current cards.
The real question isn’t whether $2,000 is sustainable, it’s whether enough people with significant spending will bite to make it profitable. My prediction? We’ll get there eventually, but when we do, it’ll be positioned as an invitation-only privilege rather than something you can just apply for online.
And that could well be how the issuers will convince enough people to pay it.
How much do you pay in credit card annual fees each year? Would you be willing to pay $2,000 for a card? Tell us in the comments section.
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