Should I close my Annual Fee credit card?

A year after opening a new credit card and receiving an initial signup bonus (SUB) of points or miles, many in the travel rewards hobby are faced with the question: should I close my annual fee credit card? In our specific case, we wanted to determine if it was worth keeping the $695 annual fee American Express Platinum. After the initial signup bonus of 100,000 Membership Rewards points (now up to 150,000 publicly available, plus a $200 statement credit), that we used towards our Maldives trip, we were coming up for renewal.

What should you evaluate to help you decide to keep it open, or close it? This post will illustrate how you can think through it, while the follow-up to this article will get into the specifics of that particular card.

Can You Feel the Beet?

Let’s say you’re walking to the grocery store to get melons. On your way there, you find a man who is selling memberships to a new startup beet club called “Can You Feel the Beet?”. You weren’t looking for beets necessarily, but you love a good deal, the branding looks slick, and he’s blasting music you like. So you stop at his booth to learn more.

He fills you in on the beets deets: the club costs $60 each year. It entitles you to (1) pound of beets per month. In your head, you recall that beets at the grocery store cost $6/lb. That means this offer works out to only $5/lb ($60 membership divided by 12 months of 1 lb/ea month). As the prospect of a $1/lb discount begins to launch a big smile across your face, he adds this qualifier: you earn your 1 free pound of beets only once you’ve purchased 2 lbs/month through the club. So, it comes in the form of a sort of BOGO credit. With the house music blaring from his speakers, you’re not fully able to process that, but hey, vegetables are good for you, and everyone loves BOGO, you remember thinking.

He continues, you’ll be happy to know that your membership ALSO includes a free online subscription to Beets World, the world’s largest internet forum on the subject, normally a $20 annual charge, AND, *mic-drop*, a free annual night stay at the famed Schrute Farms BNB in Western Pennsylvania, grow place of the nation’s finest beets. He gushes that the last time he stayed there, the going rate was $100/night!

schrute farms dwight mose see-saw — This could all be yours…

Summary of the membership

You’re a sharp numbers person whose mind doesn’t totter over small figures, so for you, this is just another day at the office:

The $60 fee includes 12 pounds of beets that would normally cost you $6/lb at the store (12x$6=$72), a $20 subscription, and a $100 BNB. Your brain, now pumping along in full sync with the beets beats, proudly churns out that all together the benefits are $72 + $20 + $100 = $192. After subtracting the $60 annual fee, you still net $132 savings with this membership. You think “this offer can’t be beet!”, and you SMASH ACCEPT!

No Ragrets

Later on that day at home, laying on your bed face-up, one hand behind your head, the other twirling your shiny new membership card, you reflect on your decision. With your eardrums no longer aching from the techno, you can properly evaluate your decision.

boy in bed wondering — Do you still Feel the Beet?

How did you get here? Things definitely got a little complicated. You were going to get MELONS, and you ended up with BEETS. Your family hardly even eats beets. Now you’re committed to purchase 24 lbs of beets per year in order to save the cost of 12 lbs per year. But, you reason, you’re getting beets at better than half-off retail price! (See Exhibit A – $84 savings!) But are you really? Or did you lose sight of already having sunk an annual fee of $60 for the membership, and now you’re throwing in an additional $5/mo in compulsory beet buys? To earn your free pound, you have to pay the $60/year membership, plus the $60/year in beet purchases through the club. See Exhibit B after factoring in the annual fee. You’re still coming out ahead, at $24, but only slightly. Plus, did you consider:

For this to work, you are restricted to purchasing beets through the Club – is their quality the best?
Might there open up a new beet stand offering lower prices than the current grocery, chipping away at your savings?
Will you get sick of eating beets at some point in the 12 months?

But, the benefits!

The other perks of the membership were designed to make this a “no-doubter.” They take signing up from a slight mathematical advantage, to an absolute steal for the consumer. But did they serve to complicate and cloud the issue, perhaps? Let’s really look at them.

Benefit 1

First, how dare you list an online subscription to Beets World as a $20 value! You already have Netflix, Hulu, Peacock, Disney+, and Paramount etc. subscriptions that you can’t remember logins for, let alone use regularly. Now, somehow, you’re going to benefit from a forum of strangers deep-diving into the similarities and differences amongst beets, swiss chard, and mangelwurzel? This is an instance of savings without value. On paper it’s worth $20, but to you, it’s worthless. Therefore you cannot use it to offset part of the annual fee. You would otherwise never have incurred the cost for a Beets World subscription.

mangelwurzel mangold root — The mangelwurzel, also called mangold, primarily used as fodder for cattle and pigs, is from the same species as red beet. RIVETING.

Benefit 2

What about the BNB, is that truly $100 in value? Well, were you already planning to spend money on a hotel night of similar nature? Then this would directly offset that cost, and you could say Yes. But if you’re honest, ask yourself:

Would you be going out of your way to make use of this benefit? How much out of your way?
Would you do it if it was free?
How much would I pay out of pocket for it?

The answer to these questions is more in line with its actual value to you. That is the most important factor in weighing this decision. (This article explores the “savings vs value” debate much more fully than I am capable of.)

So there you are, laying there on your bed, as a cold sweat begins to break out. You begin to realize you may have missed some of the bigger questions in your quest to save money. You have now fallen victim to justifying spending money on this membership. As your spouse enters the room and asks, “where are the melons I asked you to pick up?“, the depth of your miscalculation truly sets in, and your face turns, appropriately, beet red.

Take away

What does all this have to do with the decision to close an annual fee credit card? Everything. Isolating the true value of a card from its shiny packaging is key to making the most of travel rewards. Like the beets membership, annual-fee credit cards come with a slew of benefits; some simple, some complicated, that all need to be considered.

With this primer article, we feel you’ll be in a better position to figure out the value a card can bring you in relation to its annual fee. Our next post on this topic dives into our analysis of whether or not to close our AMEX Platinum.