People often ask me if X card is considered a keeper card. If the credit card doesn't have an annual fee, then the answer is usually yes, but if it does have an annual fee, then it depends.
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What Is a Keeper Card?
Cost vs. Benefit
A keeper card is a credit card where the (net) benefits outweigh the (net) costs. Otherwise, it's not worth keeping the card. The idea is that you should be getting positive expected value from the card.
Credit Cards with an Annual Fee
Credit cards with annual fees can be a considered a keeper card if you can extract positive expected value from them every year.
- Cost = annual fees
- Hidden cost = opportunity cost
The main costs are annual fees, and the hidden costs are opportunity costs.
- Benefit = signup bonuses + points earned
- Hidden benefit = improve credit score criteria
Cards with an annual fee usually have a signup bonus, and you can earn points on categories that have spending multipliers.
The hidden benefit of keeping the card is that it will improve your credit score in the areas of the average age of accounts and number of accounts (assuming you pay the balance in full each month).
Sub-Optimal Starter Cards
When you first start out in your credit journey, try to pick a no annual fee credit card that has a good graduation option. Learn more about secured cards in this post.
After you graduate from a starter card, I call these "sock drawer cards" because they don't have an annual fee, but they keep your credit score alive.
- Cost = $0
- Hidden cost =
- mental bandwidth (can be solved with a calendar reminder)
- small transaction every five months to keep the card active
- Benefit = Improves average age of accounts + total accounts
Starter cards are worth keeping long-term because they are the anchor for your credit score. Your first credit card(s) improve your average age of accounts and the total number of accounts.
Be sure to make at least one small transaction on the card every five months to keep the card active.
The positive expected value from a credit card depends if you can fully utilize the benefits for each card.
For example, the Citi Prestige is a keeper card for some people if they can benefit from the travel benefits and 4th night free.
- Cost = $450
- Benefits = $250 travel credit
- Current net value = $200
Do you get at least $200 in value from the other benefits?
- 4th night free
- Global Entry / TSA Pre-Check credit
- Priority Pass
- 3-hour trip delay protection
Some of the travel benefits from the Citi Prestige overlap with other premium cards like Priority Pass and Global Entry/TSA Pre-Check credit. In this case, if you have multiple premium cards, you have to analyze if you can get positive expected value from the Citi Prestige 4th night free benefit.
Citi Prestige 4th Night Free
"Can you get more than $200 in value to come out ahead?"
- If 4 vacations of at least 4 days...= 16 nights = 4 nights free
- If average price for a night is $100 = $400 savings from 4th night free
- If average price for a night is $200 = $800 savings from 4th night free
There's not a blanket answer for if X credit card is considered a keeper card. You'll have to spend at least 5 minutes to think about if you can get positive value from the benefits.