Big Welcome Bonus, Or Waived Annual Fee: The Big Credit Card Debate

Years back, every rewards credit card brand turned their eyes to Barclays, for the launch of their latest travel card, the Arrival Premier. Unlike other new rewards cards bursting onto the market, and into peoples conversations via huge welcome bonus offers and other perks, Barclays went the other way, offering nothing in advance, instead offering big future bonuses for yearly spending targets.

It didn’t work.

Yet another card is now relaunching into the market without a welcome bonus, and it begs the question of what travelers really want right now from their credit card company – a waived annual fee, or a big welcome bonus? In most cases, you can’t have both…

Welcome Bonus, or Waived Annual Fee?

That is the question. It’s been years since a major bank tinkered with the idea of offering a premium rewards card without a welcome bonus, let alone one with a $525 annual fee, and with signups in the dumpster right now, it’s a great time to play around.

The United Club Infinite Card relaunched this week with a waived annual fee for the first year, representing a savings of $525 on the standard annual fee a new subscriber would face. The catch? There’s literally not a single digit point of a welcome bonus for anyone.

For someone looking to grab the card, and potentially benefit for the next year, the card offers huge perks on United, including first and second checked bag free on all reservations, and with no annual fee to overcome, the risk is rather low.

Basically, you could save up to $320 per trip in bag fees (primary card holder and a companion), in addition to lounge access, and with travel expected to rebound in the second half the year, you could do that quite a few times before ever paying the annual fee. The card could save you thousands, without costing an initial dime.

In a way, it creates a more sustainable form of travel rewards, by offering a try before you buy approach, rather than a huge front loaded cost for the bank, in the form of miles. But in the other way, it kills the buzz of learning just how valuable a card can be, by unlocking a priceless travel memory on points.

People Love Welcome Bonuses

Arguably the most successful product launch of the decade in the travel rewards cards space was the Chase Sapphire Reserve, which took off like a fighter jet on an aircraft carrier, despite an annual fee in the $400’s when it first popped on the scene.

One key facet of the launch, at least in many minds, was the 100,000 point welcome bonus. With the ability to transfer points to airlines or hotels, but also burn the points as cash via the Chase Travel Portal, it meant $1500 in travel from a reasonable amount of spending, and instantly justified the annual fee, for years to come. Not even including the $300 annual travel credit, lounge guesting privileges and other perks.

Points are trickier to offer than waived annual fees, because ultimately points cost money in more tangible ways than money simply not received. When a card holder transfers points from their credit card to an airline, the credit card issuer has paid the airline or hotel for that privilege, albeit at a deeply discounted rate. Think of your credit card as buying points on your behalf.

Following this notion, although the Chase Sapphire Reserve was among the biggest launches in rewards credit card history, it was also among the most expensive, given how long it would take to recover costs from effective buying of 100,000 points for every new cardholder. To this day, it’s believed to be losing money for the bank.

Having Your Cake And Eating It Too

In a perfect world where people love credit card rewards, there would be waived annual fees and million point bonuses, but ultimately, to the surprise of many, banks are not charities. An equilibrium between sweet, sweet rewards, and credit card products which ultimately make money, or break even must exist, and it’s becoming clear that card issuers will use this “off” time to test new ways forward.

Will the United Club Infinite Card soar? Only time will tell. What do you think about big bonus points versus a waived annual fee? Is there a better solution?