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How do I know if a mile
credit card is worth the annual
fee?
Most people use their miles for
various things from domestic tickets to hotels or upgrades,so
a good rule of thumb is to value your miles at about
$0.01-$0.02 each.
So for a miles credit
card with an $85 annual fee (most are in the $40-$90 range),
you'll need to earn about 6,000 miles per year to make
it worth while. That works out to be about $500 per
month in spending on your miles credit card, which is pretty
normal for most people.
Another way to estimate if
a card is worth the annual fee is to look at our PurchasePower rating
for the card and type of award you're saving up
for.
Just multiply the PurchasePower
percentage by the number of dollars you think you'll spend on
the card in a year. If the number you get is greater than the
annual fee, then it's probably worth it. If not, you may want
to think about other options.
($ spent on card per year
X PurchasePower percentage) = $ value card returns per
year
Here's an example:
Nick wants to use
his American Airlines AAdvantage MasterCard
to save up for a
Europe Business Class ticket on American Airlines. He plans on
spending about $2000 a month, or $24,000 a year on his
card.
The
PurchasePower chart shows the Citi AAdvantage card returns
about 3.9% when you use it toward a Europe Business Class
ticket. That's because a typical business class ticket to
Europe is worth $5,000 and costs 90,000 miles. Every mile he
uses toward a business class ticket to Europe is then worth
about $0.039 cents.
Now,
to get the annual value of the miles he earns on the card,
multiply the
3.9% return on each mile he earns *
$24,000 spent on card per year = $936.
His
$2,000 per month in spending on the card works out to
$24,000 per year. That earns you 24,000 miles. If he's saving
them for a European business class ticket, their value is
about $0.039 per mile, as we learned above. So the 24,000
miles times the 3.9% return gets him about $936 in value
each year.< STRONG>
The annual fee on the card is
$85, which is much less than the $936 in value he's banking
each year, so the card is worth
keeping.
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