The benefits of premium cards are endless to those who can afford them or are eligible for them. The typical individual seeks travel, entertainment, dining, retail, and curated experiences. Premium cards may help them access these experiences in a more rewarding manner. Their annual fee may range from Rs 1000 to 10,000. Customers are repaid in kind for the high fees with vouchers, discounts, deals, concierge services, etc. Depending on the type of card, the privileges it offers, and the tie-ups or co-brands vary. For example, a certain bank has a tie-up with a luxury brand. So, one of the special joining benefits includes a luxury watch by that brand. Similarly, if it is an airline card, you could get an upgrade voucher or air miles. Other cards offer gift vouchers or privilege membership to premium or luxury retail outlets or brands. These essentially depend on the segment at which the card is targeted, and the issuer and partners try to make these benefits extremely relevant to the specific segment. This means that people who are looking for specific, rational benefits may seek these cards.
However, before choosing a rewards card, consider the amount of spending a card requires to earn the bonus points and the time frame in which you must do it. If it is more than you usually spend or more than what you can reasonably pay back without carrying a balance, it is not worth it.
Adhil Shetty, CEO, BankBazaar.com, said, “Most co-branded cards come with a sizable annual fee. You have to earn more in rewards than you pay for the privilege of having the card. If you spend enough, the rewards you earn often make the annual fees well worthwhile, not otherwise. Remember, at the end of the day whatever you spend using the credit card is a debt that has to be repaid. Regardless of the differences, credit card interests are always on the higher side. So spending much more than what can be given back can lead to a huge financial stress at the end, which can increase the burden on your finances.”
Is A Premium Credit Card With A Large Annual Fee Worth It?
Evaluating whether a premium credit card with a large annual fee is worth it involves assessing if the benefits outweigh the costs. Start by calculating the value of rewards, sign-up bonuses, and perks like travel credits and lounge access, ensuring they exceed the annual fee. Consider your spending habits to determine if you'll earn enough rewards to justify the fee. Premium cards are particularly valuable for frequent travellers who can utilize travel benefits and perks. Subtract any annual credits from the fee to find the effective annual fee, providing a clearer cost assessment.
“Also, ensure the rewards program aligns with your spending patterns. If the card's benefits match your lifestyle and you can pay off the balance monthly to avoid interest, a premium card can offer substantial value. However, if the benefits do not align with your spending or lifestyle, the card may not be worth it,” Raj Khosla, founder and managing director (MD), MyMoneyMantra.com said.
Let's consider an example in the Indian context with a premium credit card that has an annual fee of Rs 10,000 and offers the following annual credits and benefits relevant to the Indian market:
Travel Booking Credit: Rs 3,000 credit for booking flights or hotels through the card's travel portal.
Dining Credit: Rs 1,200 per year, provided as Rs 100 per month for dining at partner restaurants.
Lifestyle Membership: Complimentary membership to a premium lifestyle club valued at Rs 2,500 per year.
BOGO On Movie Tickets: Normally you either get one ticket free or get Rs 250 per month as a redeemable coupon code on your card.
To calculate the effective annual fee for someone utilizing these benefits:
Total Annual Credits: Sum the value of the credits and memberships you will use. In this case, the total is Rs 3,000 (travel booking) + Rs 1,200 (dining) + Rs 2,500 (lifestyle membership) + Rs 3000 (movie tickets) = Rs 9,700.
Subtract the total credits from the annual fee: Rs 10,000 (annual fee) - Rs 9,700 (total annual credits) = Rs 300.
So, for a cardholder who fully utilizes these benefits, the effective annual fee is reduced to Rs 300. This calculation shows that if the credits and benefits align with your lifestyle and spending habits, the card can offer value beyond its cost.