When it comes to selecting a business credit card that’s right for you, annual fees can make you wonder whether even getting a card is worth it. For Canadian business owners, the answer isn’t always straightforward. While it may be tempting to automatically go with a card that has no annual fee to save you money, you could potentially miss out on a range of perks offered by cards with annual fees that could benefit your business.
From business travel rewards cards to cashback rewards cards, there are many credit card options available for business owners. Here’s how to evaluate whether a business credit card’s perks are worth the annual fee.
Understand the perks and benefits
Some business credit cards come with annual fees because they offer rewards you wouldn’t have access to without the card. Those rewards can range from travel points and miles to discounts on hotel rates to cashback on monthly spending. Some business credit cards offer perks that are tailored to specific business needs.
In exchange for access to rewards, you pay an annual fee. Many annual fees run between $100 to $150, though cards with high reward levels may charge more.
Consider your business spending habits
The first thing to consider when deciding if an annual fee is worth it is what your business spending habits are.
Let’s look at travel rewards cards as an example. Such cards offer a variety of travel-related perks, such as travel miles or points, travel insurance, free checked bags, and discounts on hotels and car rentals. Those perks are great if your business involves a lot of travel because you can save money on regular business costs. If your business saves $500 a year in hotel costs alone by having the card, then a $150 annual fee is worth it.
But if your business doesn’t involve a lot of travel, the fee for a travel rewards card probably isn’t worth it. But a different rewards card, such as a cashback rewards card, might be.
To make the most of the annual fee, you need to choose a card that offers rewards, perks, and discounts in the spending categories you use the most.
Calculate potential value
To calculate the potential value of the card, estimate based on your business spending patterns what rewards you’ll accumulate. Here’s how to do this:
- Review your business’s monthly or annual spending in various categories, such as office supplies, travel, dining, and advertising.
- Identify the categories where you spend the most money.
- Multiply your estimated spending in each category by the card’s reward rate. For example, if your business spends $2,000 per month on office supplies and the card offers 2% cashback in that category, you’d earn $40 per month ($480 per year) in cash back.
- Factor in additional perks. For example, if the business travel card offers airport lounge access, consider how often you and your employees travel. Multiply the approximate cost of lounge access (usually $40-$50) by the number of flights. If the card waives fees for checked bags, multiply the cost of a checked bag by the number of flights. Add the value of those perks together.
- Calculate the break-even point. Take the value of the rewards and compare it with the annual fee. If the value of the rewards is higher than the annual fee, you’re coming out ahead.
Remember the value of convenience
There is also value in rewards cards beyond the dollars and cents. For example, airport lounge access offers your employees a chance to work in a quiet space while they wait for their flights. Sometimes, the conveniences of rewards cards add significant value for business owners, even if that value can’t be put into financial terms.
Additional factors to consider
Business rewards cards may also offer sign-up bonuses, which can significantly add to the value of the card. Make sure you understand how the perks work and whether they expire, as that can affect their value.
Also, check the interest rate. If you need to carry a balance on your card, then the interest charges could quickly add up, outweighing the potential benefits. In that case, it might be wise to go with a card that has a lower interest rate, even if there are fewer benefits. Read the fine print to ensure you understand all the terms and conditions.
Final thoughts
Annual fees give business owners access to many rewards. The key is to make sure you choose a card with rewards that add value to your business.
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