The comparison that matters
Don't compare a card with nothing. Compare it with the card you'd use otherwise. The question is whether the extra rewards cover the extra fee.
For each spending category:
- Take what you spend in a year.
- Multiply it by the difference between the two cards' earn rates.
- Add the categories together.
- Subtract the difference in annual fees.
If what's left is above zero, the card with the fee comes out ahead on your spending.
A worked example
This uses made-up cards and numbers. Card A has no fee and earns 1% on everything. Card B costs $120 a year and earns 4% on groceries and 1% on everything else.
Groceries
Spent in a year: $6,000
Card A: $60
Card B: $240
Difference: $180
Everything else
Spent in a year: $14,000
Card A: $140
Card B: $140
Difference: $0
Card B earns $180 more and costs $120 more, so it comes out about $60 a year ahead.
If groceries were $3,000 a year instead, Card B would earn only $90 more, $30 less than its fee.
What changes the answer
- Where you shop. A grocery rate doesn't count at a store that won't take the card. Loblaw grocers don't take American Express, and Costco takes only Mastercard.
- Category caps. Many cards stop paying the higher rate after a set amount of spending. Above the cap, you get the base rate.
- How rewards are valued. Points are worth what you can redeem them for. Use the value at which you'd actually spend them.
- Welcome offers. A first-year bonus can cover the fee once, but not in later years. Look at the ongoing value first, then the bonus.
- Applying. Applying for a card usually triggers a hard credit inquiry.
Why Loblaw grocers skip Amex and Costco is Mastercard only
How Kova does it
Kova runs this comparison for each card in its list, using your own purchases, category caps and store rules, after each card's annual fee. Welcome offers are shown separately.
Sources
- The example uses made-up cards. Check each card's earn rates, caps and fee on the issuer's own page.