Is Your Credit Card Worth the Fee? A Guide to Evaluating Net Rewards

[helloworld]

Evaluating the Value of Your Credit Card Fee​

When considering whether a credit card is worth its annual fee, it's essential to calculate the net reward rate effectively. Here's a scenario to illustrate this:

Scenario​

• Spent: ₹1,000
• Cashback Earned: ₹10
• Discount Received: ₹10
• Annual Fee Paid: ₹30

Methods of Calculation​

You can evaluate the net reward rate using two different approaches:

A. Return Percentage Calculation (Including Fee)​

This method considers the fee as part of the overall spending, allowing for a broader perspective on the card's performance.

Formula:


Calculation:

Return % = (₹10 + ₹10) / (₹1,000 + ₹30) ≈ 1.94% // Fee paid considered as spent, so no impact of fee

B. Return Percentage Calculation (Excluding Fee)​

This method subtracts the annual fee from the rewards earned to assess the true value gained from the card.

Formula:



B. Return % = (₹10 + ₹10 - ₹30) / ₹1,000 ≈ -1% // to know the impact of annual fee by deducting fee paid from Cashback/Discounts

Which Method Should You Consider?​

• Option A is useful for understanding the general reward rate and how the card performs relative to overall spending, including fees.
• Option B provides a clearer picture of the impact of the annual fee on your net rewards, showing whether the benefits are worth the cost.

Method A: when we generally consider fee as total spend amount, then usually we can't identify bad cards in our portfolio. Everything positive but can compare with LTF card if that provide more benefits compare to paid card.

So, here reward % can only be used to compare other cards and see whether the fee worth for the card or not

Method B: when we considered fee as part of our benefits, it usually and explicitly tells whether that card provided benefits when compared to fee directly, without much comparison. because here you'll get negative value which generally tells our brain, this card eating your money.

So, ideally it depends on personal preferences but if using any method for one card, then same applies all cards and comparison should present incase method A.

Conclusion​

Ultimately, your choice depends on what you value more: understanding the card's overall performance or focusing on how the fee affects your rewards. If you're primarily concerned with maximizing benefits against costs, Option B is the more accurate measure.

:: LTF Only people, ignore this post. And post mainly about inclusion of fee, remaining all are optional.

 

[mj01]

Which one will you consider as net reward rate of the card and why?

Scenario: Spent ₹1000, and got cashback ₹10 + discount ₹10 but that year paid card fee ₹30.

A. Return % = (Cashback + Discount) / (Spent + Fee) ~ 1.94% // Fee paid considered as spent, so no impact of fee

or

B. Return % = (Cashback + Discount - Fee) / Spent ~ -1% // to know the impact of annual fee

:: LTF Only people, ignore this post. And post mainly about inclusion of fee, remaining all are optional.

B makes logical sense. Also look at incremental benefit of owning a paid card (when compared to an LTF card). 10k fees with 2.5% return vs 0 fees with 2% return gives you net 0.5% return for 10k paid. So the 10k fees should be recovered by that 0.5% than the whole 2.5%!

 

[myfinquest]

If you are just comparing two cards, any method will be just fine. For absolute terms , B makes more sense. You have to consider fee waiver and other benefit associated with paid cards.

 

[helloworld]

If you are just comparing two cards, any method will be just fine. For absolute terms , B makes more sense. You have to consider fee waiver and other benefit associated with paid cards.

this is applicable for all cards. just want to see the formula to get net return.

Ex:

Spend requirement for 10k Vouchers:
1.26L in first year with Joining fee (6000), you'll get 10k points = 7.92%
1.56L in second year with renewal fee (6000), you'll get another 10k points = 6.41%

Will provide 20k Vouchers on 2.82L spends = 7%

and this is if we're going for A. formula ..

but for B. formula its just 2.96%

-----------

looking for which does make sense.

 

[helloworld]

B makes logical sense. Also look at incremental benefit of owning a paid card (when compared to an LTF card). 10k fees with 2.5% return vs 0 fees with 2% return gives you net 0.5% return for 10k paid. So the 10k fees should be recovered by that 0.5% than the whole 2.5%!

this 10k fees with 2.5% based on which formula listed above (A or B) ?

and,

So the 10k fees should be recovered by that 0.5% than the whole 2.5%!

could you give example, confused?

 

[cardy]

Yes me too

this 10k fees with 2.5% based on which formula listed above (A or B) ?

and,


could you give example, confused?

 

[mj01]

this 10k fees with 2.5% based on which formula listed above (A or B) ?

and,


could you give example, confused?

Hypothetically, consider your annual spends are 6L, and that you own an LTF card that gives you 2% return. 2% * 6L = 12,000. Now, you are planning to get a paid card that has a fee of 10,000 and gives 2.5% return (without accounting for fees). If you move all your spends to this card, you are getting net return 2.5% * 6L - 10,000 = 5,000. So your incremental return is negative (as you went from 12,000 to 5,000) even when it looks positive on a standalone basis.

Many people compare benefits only to the fees paid. Incremental benefit with respect to your current best card should ideally be used in deciding whether to get that paid card.

 

[mj01]

Incremental benefit with respect to your current best card should ideally be used in deciding whether to get that paid card.

Another example of this is that you hold a card with unlimited lounge access. If you get another card that also offers lounge access, that benefit has 0 incremental value for your use case!

 

[helloworld]

Hypothetically, consider your annual spends are 6L, and that you own an LTF card that gives you 2% return. 2% * 6L = 12,000. Now, you are planning to get a paid card that has a fee of 10,000 and gives 2.5% return (without accounting for fees). If you move all your spends to this card, you are getting net return 2.5% * 6L - 10,000 = 5,000. So your incremental return is negative (as you went from 12,000 to 5,000) even when it looks positive on a standalone basis.

understood.

Another example of this is that you hold a card with unlimited lounge access. If you get another card that also offers lounge access, that benefit has 0 incremental value for your use case!

yes, that is overlapped card without any purpose for that benefit. But any case above calculations only happen if we avail any service/benefit on that card. So, even though other card provide 'unlimited lounge' that may not accept this particular place and 'discount' contributes to another card if that works there.

 

[helloworld]

So far got the B. formula suitable for calculation of reward % most votes, which is we should recover the fee from cashback/discounts rather consider as spent.

How this impact to those cards which offer equal reward points for the fee paid? Any views on that?

 

[real_name_hidden]

So far got the B. formula suitable for calculation of reward % most votes, which is we should recover the fee from cashback/discounts rather consider as spent.

How this impact to those cards which offer equal reward points for the fee paid? Any views on that?

Assuming value of reward points is same as fee paid, you can replace fee with gst component in existing B formula.

 

[helloworld]

Assuming value of reward points is same as fee paid, you can replace fee with gst component in existing B formula.

Here is what I'm thinking..

Spent ₹1000, and got cashback ₹10 + discount ₹10 but that year paid card fee ₹30 in return they gave 25 RPs.

My return until not redeem those 25 RPs.

B. Return % = (Cashback + Discount - Fee) / Spent ~ -1%

and when redeemed 25RPs to ₹20 (with all fees)

Now, add this ₹20 to Cashback/Discount (depends on redemption method)

B. Return % (assuming same spends and cashback) = (10+10+20-30)/1000 ~ 1%

 

[sidpsidp is verified member.]

Scenario: Spent ₹1000, and got cashback ₹10 + discount ₹10 but that year paid card fee ₹30.

A. Return % = (Cashback + Discount) / (Spent + Fee) ~ 1.94% // Fee paid considered as spent, so no impact of fee
or
B. Return % = (Cashback + Discount - Fee) / Spent ~ -1% // to know the impact of annual fee

I understand how it may be seem like b is better option but Logically A makes sense. When comparing multiple options we use cost benefit analysis. Ie (total benefit/total cost)*100

Fee is a cost not benefit. So it has to be in denominator. One way to differentiate is law of temporal antecedence. Cost is cause. Benefit is effect. Cause will always precede effect no matter how small the time lag may be. ( most people do this mistake including big consulting firm .)

This is for initial judgement. But in future if situation changes we use incremental analysis where we consider opportunity cost. Opportunities from new plan must be higher than Loss of opportunities from original plan+cost associated with switching . A lot of small business & agri business in particular make the mistake of not considering opportunity cost. Therefore they end up choosing wrong option or at the very least wrong pricing.

 

[helloworld]

I understand how it may be seem like b is better option but Logically A makes sense. When comparing multiple options we use cost benefit analysis. Ie (total benefit/total cost)*100

Fee is a cost not benefit. So it has to be in denominator. One way to differentiate is law of temporal antecedence. Cost is cause. Benefit is effect. Cause will always precede effect no matter how small the time lag may be. ( most people do this mistake including big consulting firm .)

This is for initial judgement. But in future if situation changes we use incremental analysis where we consider opportunity cost. Opportunities from new plan must be higher than Loss of opportunities from original plan+cost associated with switching . A lot of small business & agri business in particular make the mistake of not considering opportunity cost. Therefore they end up choosing wrong option or at the very least wrong pricing.

Interesting. So, you're saying fee is already spent, and it shouldn't be part of benefit calculation (cashback + discount) and not meant for recovery.

Now, A. make sense.

Opportunities from new plan must be higher than Loss of opportunities from original plan+cost associated with switching .

yeah, this is huge area where one might lost 🙂 but good to know more about opportunity cost..

https://www.technofino.in/community...rs-vs-stan-chart-rewards-360.8471/post-134404

 

[sidpsidp is verified member.]

Interesting. So, you're saying fee is already spent, and it shouldn't be part of benefit calculation (cashback + discount) and not meant for recovery.

Now, A. make sense.



yeah, this is huge area where one might lost 🙂 but good to know more about opportunity cost..

https://www.technofino.in/community...rs-vs-stan-chart-rewards-360.8471/post-134404

You are on right track there. But slight mistake.
So net benefit is 15000×.95 -900-118=13232
This is what you gained in absolute term.
But if you do cba for % return it will be

15000× .95/(4.5L+900+118) .

See this is not a exact science. Calculation will vary depending on person.

Let's take the example of infinnia.

Let's say you spent 8L for which got 1L rp. Then annual fee 12.5k, 2.25k gst.
There are so many option to redeem. For me best option is tanishq at 1:1.
Total rp 1,12,500. But I wouldn't value at 1:1. Its easy to get neu infinity where you could get 5% off. Some even get at 7-8% in gv. There is tiem value of money. As you ll redeem may be once in a year or year & half. So need to discount again by around 10%. Plus cash is king. May be I wasn't planning to buy gold right now due to high price. Plus tanishq charge more than other good jeweler. So all in all need to discount around 20%. (Technically 1,12500×.93(for gv to calculate actual value)×.9( for time value of money)×.95( for factors like higher charge by tanisq, for not getting the best possible option I.e. real cash back)
So % return using cba will be
1,12500×.8/(8L+12.5k+2.25k) =11%

If you use for hotel /air travel it will be even more complex.
You have to consider higher price in smart buy, leaving good deals in other platform, when you buy you can redeem only 70% or 50% by rp, rest has to be paid by card, but the rest amount paid by card will also get 5x,10x
Many people also don't consider the cost associated with tiem and mental peace in tracking, forced spend, being locked in an ecosystem ( you might have other better option for a particular transactions but you continue to use the same card to reach milestones). If I start diving deeper I will find 100s of factors to consider, which isn't practical.

 

[helloworld]

Yep, normally consider 20% as opportunity cost for the redemption we're going for. so, that we may get better idea that card provides and for easy calculation, the more they want, the more factors can include.

Thanks @sidp

I'll check my rewards by keeping fee in denominator, till now I used B. but just got confused about the way to calculate. This thread gave me some insights.

 

[sidpsidp is verified member.]

Yep, normally consider 20% as opportunity cost for the redemption we're going for. so, that we may get better idea that card provides and for easy calculation, the more they want, the more factors can include.

Thanks @sidp

I'll check my rewards by keeping fee in denominator, till now I used B. but just got confused about the way to calculate. This thread gave me some insights.

All depends on personal priorities.
For redeeming rp as hotel booking I would discount by 60% as I won't pay the same amount or stay in same hotel if I were to pay it out of my pocket.
But for tanishq I would discount 20% only as I would anyway buy some gold every year.
Like I said this isn't exact science.

 

[helloworld]

Method A: when we generally consider fee as total spend amount, then usually we can't identify bad cards in our portfolio. Everything positive but can compare with LTF card if that provide more benefits compare to paid card.

So, here reward % can only be used to compare other cards and see whether the fee worth for the card or not

Method B: when we considered fee as part of our benefits, it usually and explicitly tells whether that card provided benefits when compared to fee directly, without much comparison. because here you'll get negative value which generally tells our brain, this card eating your money.

So, ideally it depends on personal preferences but if using any method for one card, then same applies all cards and comparison should present incase method A.

 

[ujjwal2024]

Hypothetically, consider your annual spends are 6L, and that you own an LTF card that gives you 2% return. 2% * 6L = 12,000. Now, you are planning to get a paid card that has a fee of 10,000 and gives 2.5% return (without accounting for fees). If you move all your spends to this card, you are getting net return 2.5% * 6L - 10,000 = 5,000. So your incremental return is negative (as you went from 12,000 to 5,000) even when it looks positive on a standalone basis.

Many people compare benefits only to the fees paid. Incremental benefit with respect to your current best card should ideally be used in deciding whether to get that paid card.

I fully support this calculation...and in low spend scenario LTF card with low reward rate sometimes may turns out to be more profitable...

 

[helloworld]

From AI 🙂 :

To determine which method to use for evaluating card returns (considering annual fees), it depends on your goal:

---

Method A: (Cashback + Discounts) / (Spent + Annual Fee)
Purpose:​

• Shows the gross return relative to total outflow (spending + fees).
• Useful for comparing cards where fees are unavoidable (e.g., premium cards with non-waivable fees).

---

Method B: (Cashback + Discounts − Annual Fee) / Spent
Purpose:​

• Shows the net return after deducting fees, relative to actual spending.
• Highlights whether the card is profitable after fees (negative = net loss).
• Best for evaluating fee-sensitive decisions (e.g., whether to keep the card or negotiate a fee waiver).

---

Which Should You Use?​

1. For Lifetime-Free Cards: Use Method A (no annual fee to deduct).
2. For Cards with Annual Fees:
   
   • Use Method B to assess true profitability (net of fees).
   • Use Method A to compare against cards where fees are unavoidable.

---

Practical Example​

• If you spend ₹1,000 and pay ₹30 in fees:
  
  • Method B tells you the card costs you 1% of your spending.
  • Method A masks the fee’s impact by treating it as "spent money," which may not reflect reality.

Recommendation: Use Method B for most scenarios, as it directly answers: "Did this card save me money or cost me money?"