Do you pay annual fees when you make them back?

[8 Bit WWBG]

I've been thinking about a particular rewards card (Amex Blue) that pays 6% cash back on groceries. The annual fee is $75. I've done a cursory review of my grocery spend, and am confident I can make the fee back and and a healthy profit without spend creep or long shots. Lately we've spent between $400 and $500/mo on groceries, and enough of that is done at stores that accept American Express (an example of one that doesn't is Trader Joe's). The rewards redemption rate is also pretty good, so mathematically, I should be in the clear.

Part of me says this is no different than paying to be a costco executive member. I make back the fee and then some, so I come out ahead.

The other part of me just hates paying fees.

Has anyone faced a similar dilemma? What did you do?

[Deleted]

Haven't been in that situation, but what is the "profit margin"? Is it a couple of dollars or around $100 or more? As long as I know I'd make more back then I think I'd be perfectly fine getting the card.

Edit: Going by the simple numbers @ $400 a month x .06 = $24 a month earned. Over the course of the year that's $288. So heck yeah...for $79 you're at minimum making $209 by spending $400 a month in groceries. As long as you're not paying any interest on these cards then you could spend as little as $110 a month and come out "ahead" of the $79, if only by $0.20.

[Deleted]

Heck, yes. We have Hilton and Amex CCs and it's worth the annual fees to get the points and the Elite status. Hotel chains are FAR more generous when it comes to redeeming points. OTOH, we have 2 American Airlines-branded cards that each gave us 75K miles after spending $1,500 in the first 3 months. Annual fee is waived for the first year. I'll drop both of those when the annual fee kicks in.

[sapphire12]

WWBG -- Trader Joe's accepts Amex. I used mine at the Springfield location on May 29. Sounds like you should go for it, though I do understand how you feel about the fees.

[alabamagal]

For $400 per month, you would get $288 - $75 = $213. I would do it. You probably also get some cash back on other purchases. I use my AmEx card as much as I can, but no fee and only 1% back. If you do everything on line, it is really easy. I just charge all my monthly bills (phone/internet, DISH are car insurance), then transfer money from checking to AmEx. Use for purchases during the month, then pay AmEx. When I get enough points, go online, get a $25 cash back bonus put in my AmEx account the next day. I get the $25 every 2 months or so.

[alabamagal]

I did the same thing several years ago paying a "fee" for AmEx. It was on my business card (which was free) and then you could pay $35 per year to be in their rewards program. Since I travelled to Europe business class several times per year, I would spend lots on the AmEx. So the $35 per year would pay for about $200 per year in gift cards at places that we regularly shopped (no cash rewards were allowed on that account).

[8 Bit WWBG]

...:::"but what is the "profit margin"? Is it a couple of dollars or around $100 or more?":::...

This one is for my buddy cawiau... "the more I spend, the more I save"

OK not really, so here's the math. If $200/mo out of my average $400/mo groceries qualify, then $2,400/yr = $144.00, which is almost double the fee. Apparently it also gives 3% on gas too. Assuming $50/mo on gas, then $600/year = 18, which puts me at $162.

If the rumors are true (and I've heard this both ways) and I can buy Amazon gift cards at the grocery store, and have it count toward the 6%, I could conceivably add another $18-$36/year.

If costco purchases (or at least, costco groceries) count as groceries as well, I could conceivably earn $252/year just in grocery rewards. Add the $18 from gas, and another 30 from Amazon, and I'm at $300, for a profit ranging from $75 to $225.

[chiver78]

I only have one card with a fee - and it's only applied if I choose to utilitze the rewards program. if I don't, there's no fee. my corporate American Express card has a $75 annual fee to enroll in Membership Rewards. my AmEx Blue card has no fee, and is automatically enrolled in MR *and* linked to the corporate MR account.

I'd say it was absolutely worth it up until recently, when my job function changed a bit. I was traveling all over hell and creation, almost always business class, and invariably on very short notice. combine that with the standard monthly bills that get run through my Blue card (cell, EZ-pass, gym membership) and points added up very quickly. as a result, I was able to go nuts with some Pottery Barn gift cards and outfit my house in some snazzy wood furniture - essentially for free.

given the change in job function though, I'm going to be taking a look at how much travel is really in my future at work. I may be unenrolling my corporate card.

bottom line, if you're making it back, you really can't go wrong. if you're not sure, start keeping track for a bit.

[saveinla]

I have the Blue from American Express - it's the clear card with the blue square in the center, but I do not have annual fees. Is this a different card? If it's the same card, talk to them and see if they will waive it. I get mails from them all the time asking to upgrade to the gold or silver ones with annual fees waived for 1 or 2 years. Use it for a year and then decide what you would like to do.

I get points on them and use it for Car rental certificates all the time.

[Deleted]

Jun 22, 2011 11:52:36 GMT -5 8 Bit WWBG said:

...:::"but what is the "profit margin"? Is it a couple of dollars or around $100 or more?":::...

This one is for my buddy cawiau... "the more I spend, the more I save"

OK not really, so here's the math. If $200/mo out of my average $400/mo groceries qualify, then $2,400/yr = $144.00, which is almost double the fee. Apparently it also gives 3% on gas too. Assuming $50/mo on gas, then $600/year = 18, which puts me at $162.

If the rumors are true (and I've heard this both ways) and I can buy Amazon gift cards at the grocery store, and have it count toward the 6%, I could conceivably add another $18-$36/year.

If costco purchases (or at least, costco groceries) count as groceries as well, I could conceivably earn $252/year just in grocery rewards. Add the $18 from gas, and another 30 from Amazon, and I'm at $300, for a profit ranging from $75 to $225.

Haha! Yeah I'd be okay with paying the fee if I'm pretty sure I'm going to double or more what the fee "cost" me.

[greenstone]

Jun 22, 2011 11:52:36 GMT -5 8 Bit WWBG said:

...:::"but what is the "profit margin"? Is it a couple of dollars or around $100 or more?":::...

If the rumors are true (and I've heard this both ways) and I can buy Amazon gift cards at the grocery store, and have it count toward the 6%, I could conceivably add another $18-$36/year.

I buy gift cards all the time when my Chase Freedom card is offering 5% cash back at grocery stores. Grocery stores carry cards for almost everywhere I shop so it's an awesome deal. If you only get 3% off gas, buy the gas cards at the grocery store for 6% off.
The fine print says they determine store eligibility by the merchant code. It's up to the merchant to choose their code and the card takes no responsibility if it is correct. It's not like they go through an itemized list of what you bought. And usually the fine print always excludes warehouse club stores.

[8 Bit WWBG]

...:::"Trader Joe's accepts Amex. I used mine":::...

Oh good! I guess they have changed their rules, as I remember not being able to use it a few years ago.

...:::"For $400 per month, you would get $288 - $75 = $213.":::...

Agreed, but I assumed $300 to account for places like farmers markets or groceries purchased in Walmart/Target which will not ring up as grocery stores.

...:::"I use my AmEx card as much as I can, but no fee and only 1% back. If you do everything on line, it is really easy. I just charge all my monthly bills (phone/internet, DISH are car insurance)":::...

I will definitely be looking at which bills to pay in this manner. I also recently signed up for my bank's points program, and I have other cards that offer better benefits on eating out. But yes, I will be sitting down in the near future to plan out which cards to use for which purchases.

...:::"I have the Blue from American Express - it's the clear card with the blue square in the center, but I do not have annual fees. Is this a different card?":::...

Yes. According to one site, there is a "free version" that pays 3% on groceries, and a "paid version" that pays 6% on groceries.

...:::"I buy gift cards all the time when my Chase Freedom card is offering 5% cash back at grocery stores.":::...

The devil will be in the details. With my discover card (occasionally offers 5%) the fine print EXPLICITLY excludes gift card purchases as eligible, even if bought in a grocery store. This may vary card for card, but its a HUGE loophole that could cost the companies big time. Its essentially getting paid to buy money.

...:::"If you only get 3% off gas, buy the gas cards at the grocery store for 6% off.":::...

That is an excellent idea. Although I'd have to price gas at costco or sams vs. regular. It might be better to pay 30c less per gallon, than earn 6% on pricier gas.

...:::"It's not like they go through an itemized list of what you bought.":::...

My interpretation is that they don't have to, as gift cards may be coded as "non-qualifying". I do systems for a living, and it is easy to put flags into data or filter it out.

...:::"And usually the fine print always excludes warehouse club stores.":::...

Agreed, and precisely the reason I do not expect my full grocery spend to count.

[midjd]

It sounds like this card is a good deal for you. I paid $25 for the Chase Debit card (that is now defunct) and usually made the fee back, plus another $100 or so. As long as you're spending the money on things you would have bought anyway (groceries definitely count), I don't see a downside.

[Tiny]

I'm math challenged so someone else will have to it....

So, what's the actual percent for cash back after you cover the Fee?
I'm gonna do some ATS Math (which might not be REAL math): 400 * 12 = 4800 *.06 = 288 then 288-75 =213. Let's see 4800 * .045 = 216. So your rewards card is really giving you a little less than 4.5% Cash Back on Groceries.

What other rewards cards do you have and what % do they use? How does that compare over all to the AMEX card?

[Formerly SK]

Not to be picky, but since most free cc give 1-3% back on groceries, you need to factor in the opportunity cost into your calcs as well. Meaning, instead of comparing a fee-based cc with 6% back to plain ol' cash, compare it to a 1-3% free cc. Would a net difference of 3-5% back be worth the annual fee?

[❤ mollymouser ❤]

We pay a $75 annual fee on our Alaska Airlines card since we got it in 2008. To date, we've received over $1500 in airline discounts as a result of having the card, so I figure we'll "break even" in 20 years even if we never use another mile. (We've only paid $150 in fees so far ... first year was free, year #3 they made an error to the fee was waived.) So far, it's been worth keeping around as a "spare" card (in case something happens with our cash back rewards card from another bank.) The nice thing about the fee is that they cannot cancel the card ... which makes it appealing even when we don't use it very often.

[Deleted]

We have the Marriott Visa which we pay $65/year for. For that, we get 1 night free up to category 4. That night is worth over $100 usually (usually much more when factoring in the high hotel taxes we avoid). Plus we get the other benefits like nights toward status and the points toward free nights.

[mithrin]

Jun 22, 2011 15:02:08 GMT -5 Formerly SK said:

Not to be picky, but since most free cc give 1-3% back on groceries, you need to factor in the opportunity cost into your calcs as well. Meaning, instead of comparing a fee-based cc with 6% back to plain ol' cash, compare it to a 1-3% free cc. Would a net difference of 3-5% back be worth the annual fee?

This part of the equation is being left out by most posters.

You should figure out how much you earn in rewards from the Amex, then subtract off the fee, and then also subtract off what you could have earned with an alternate card.

[Annual Qualified Grocery Spend] x [.06] - [Fee] - ([AQGS] x [.0X from alternate card])

It gets especially tricky if you have cards like the Chase Freedom or Discover, where you can get 5% back for 3 months on groceries--especially if you can use them to stock up on grocery store gift cards to use after the 5% expires.

I'm currently not using my Costco Amex for gas because I have a Citi Forward earning 1% back with no interest until August 2012. Between the 1.2% back and the 3% APY in my checking account, I can get more back by using the Citi Card. It did cost me $7 to get the 0% on purchases (had to do a BT to get 0% on both BT and purchases, subject to 3% fee); but since it's already my best card for bookstores and restaurants, I'll make the $7 back by floating a balance for 12+ months.