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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Feel less awkward about tipping with our Nerds’ tipping tips. Then learn about credit cards with high annual fees.

This Week in Your Money: Sean Pyles and Liz Weston discuss when to tip, when not to tip and how much you should tip — not just in restaurants, but also in places where people haven’t historically tipped, like grocery stores and self-serve frozen yogurt places. They also talk about the broader economic implications of tipping and different tipping standards around the world.

Today’s Money Question: Erin Hurd joins Sean Pyles and Sara Rathner to discuss credit cards with high annual fees: why are they so expensive, what benefits do they offer, and how can you make sure you’re not leaving money on the table if you use them? They talk about what to consider if you’re thinking about getting one, how to get the most out of your rewards points and understanding when it might be time for a product change.

Check out this episode on your favorite podcast platform, including:

More on tipping and credit card annual fees on NerdWallet:

Liz Weston: Have we reached the tipping point when it comes to tipping service workers?

Sean Pyles: I think that I have. It seems like every restaurant, cafe and dry cleaner is asking you to tip nowadays. So in this episode, we’re talking about tipping. When to tip, when not to tip and how much you should be forking over.

Liz Weston: Welcome to NerdWallet’s Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I’m Liz Weston.

Sean Pyles: And I’m Sean Pyles. Listener, we know you’ve got money questions, and you know that we Nerds are here to help you answer them. So shoot your questions our way.

Liz Weston: You can leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us, [email protected]

Sean Pyles: In this episode, I’m joined by our co-host, Sara Rathner, to answer a listener’s question about how to make credit cards with high annual fees worth the money. But first, it is tip time. Liz and I are going to discuss our philosophies around tipping and give you some tips for tipping. I’m going to drive this thing into the ground.

Liz Weston: You already have. That’s fine. OK. So let me preface this by saying that I worked in restaurants back in the day, and I know that tipping waitstaff is so important. Depending on where you live, your servers could be making as little as $2.13 an hour, so they need tips to make any kind of a living wage. Bottom line, do not stiff the waitstaff. But I am getting cranky about all the other places that I’m being asked to tip, like for takeout. Why am I being asked to tip 20% when all you had to do was put food in the bag? And Sean, why is there a tip jar at a self-serve frozen yogurt place?

Sean Pyles: Yeah, it can be really awkward, especially if you’re being asked to tip for things that you really didn’t have to tip for historically, like self-serve frozen yogurt or going through a drive-thru. But you’re right. Tipping stations and jars and touchscreens seem to be everywhere nowadays. And we are a show about helping people make decisions with their money. And it strikes me that this is one of the most frequent decisions that we have to make. How much are you going to tip, and will you tip at all?

Liz Weston: OK, so where do you fall?

Sean Pyles: I try to be generous by default. For me, tipping 20% at restaurants is minimum. I’ll tip a dollar or two when I get a coffee. And if I have an ongoing relationship with someone like my barber, I’ll tip more. By the way, shoutout to Mike at Too Sweet Barbershop in Portland. He’s a lovely barber and a Smart Money listener. Anyway, how do you approach this, Liz?

Liz Weston: Well, I complain, but I’m pretty much a sucker. I will stick a buck or two in most tip jars if for no other reason than gratitude that I no longer have to work for tips. But you gotta wonder, when does this stop?

Sean Pyles: Yeah, we gave the example of tipping at a drive-thru earlier, and I think that sums this up well. The bottom line is that people need tips because they are being underpaid, some may even say exploited, by their employer. Or consumers also are just used to paying a certain amount for something like a burger out, and the workers rely on tips to make the whole thing stay afloat. And I kind of buy that for some smaller businesses. Where I take issue is with larger companies with large profit margins suddenly introducing tipping, like at the grocery store, which I’ve heard stories about online. If a large company is making their employees ask for tips, I do think they should be forced to disclose just how much their CEO makes annually. So this is something that I feel really strongly about. But what are your thoughts, Liz?

Liz Weston: Well, I think if there’s a tip jar on a counter, we can use it or not. And you gave the example of the grocery stores. My very first job was bagging in a grocery store and you were …

Sean Pyles: Same.

Liz Weston: Oh, really?

Sean Pyles: Yes.

Liz Weston: I don’t know about your store, but we were forbidden to take tips, and I once had a not unpleasant but uncomfortable interaction with an older customer who just really wanted to force money on me, and I really had to say no. But the idea was that the service was included, that people shouldn’t feel pressured to tip. So I think if you are being pressured in a situation where you’re not used to tipping, you can take a moment, take a breath, maybe set a custom tip. If you’re being presented with one of those tablet screens that has the preset amounts, you usually can set a custom tip. That option is typically there, so you don’t have to use the suggested ones. But again, do not stiff your waiter.

Sean Pyles: No. And if you feel like you’re being forced to tip someone in a place that you don’t feel comfortable doing that or you didn’t typically have to tip, I think that one route you can do is maybe tip them because the employee does frankly need the money most likely. But then also think about reaching out to management and talking with them about what’s going on. It might be a little bit awkward to have that conversation, but it can help you understand exactly why they’re doing this because some companies may be doing this to inflate their bottom lines, too, and it just feels a little bit icky, and it can also feel like a lose-lose for everyone involved because being pushed into tipping can be super aggravating as a consumer. So what’s really the solution? Is it that you don’t tip the underpaid worker in protest of their employer’s practice? That really just screws over the worker.

Liz Weston: Yeah, it’s a messed-up system for sure. I really like the way that they do it in a lot of other countries because the servers earn a living wage and they get health care and paid vacations. So a tip really is just an expression of appreciation. You can leave a euro or two at most places and feel good about it. And in some countries like Japan, tipping is pretty much nonexistent. I’ve heard it said that tipping in Japan is considered rude, which is not quite the case. Somebody else framed it as it’s just seen as weird. Why would you do that?

Sean Pyles: Yeah, we look at other countries and we see things like living wages, health care, paid vacations. It’s incredible. Makes me jealous a little bit. But also, listener, because we’re NerdWallet, we of course have an article about how much to tip for just about everything. The article also includes a handy tip calculator that will do the math for you. We’ll have a link to it in this episode’s show notes post. You can find that at nerdwallet.com/podcast.

Liz Weston: And here’s a few examples from the article. For beauticians, hairdressers, people doing your hair and nails, tipping between 10% and 15% is common. I’d say where I am in LA, 20% is probably more the norm. For hotel housekeeping, $4 or $5 a night, that’s a really good goal. If you stay in a hotel for five days, leaving a twenty [dollar bill] on the dresser should be fine. And for rideshare drivers, again, aim to tip between 15% and 20%.

Sean Pyles: And if you do find yourself feeling a little bit stressed out or overwhelmed about whether you’re supposed to tip and how much you’re supposed to tip, my bottom line is just try to bring some patience, grace and generosity to the interaction. The person on the receiving end of that tip will very likely appreciate it.

Liz Weston: OK, well, let’s get on to this episode’s money question.

Sean Pyles: This episode’s money question comes from Sue, who sent us an email. Here it is:

“I have a credit card with a high annual fee. The annual fee is now due, but we don’t really use it enough to warrant this great fee. We have about 300,000 rewards points in the account. My husband just got an offer for a card from the same company which offers a 125,000 reward points incentive. Would we be better off putting my card into a no- or low-fee card from this company and opening my husband’s card with this new offer? Can we then use the points from both cards for travel or do you have another suggestion?”

Sara Rathner: To help us answer Sue’s question, on this episode of the podcast we’re joined by credit cards Nerd Erin Hurd. Welcome back to Smart Money, Erin.

Erin Hurd: Hey, thanks so much for having me, Sara and Sean.

Sean Pyles: Erin, it’s great to talk with you. Before we get into the specifics of Sue’s question, one quick disclaimer. First, everything we’re going to discuss is just for general educational purposes and is not advice around how you should use your cards, regardless of how expensive their annual fees are. OK, with all that out of the way, let’s start by breaking down what’s going on with credit cards that have these hugely expensive annual fees. Why are they so expensive, and what do you get for it?

Erin Hurd: Yeah, they are really expensive. There’s a growing number of credit cards with these triple-digit annual fees, which to some people is almost unbelievable. I know it seems crazy to pay such a high fee to carry these cards, but the upside is that these cards come with a ton of perks, and they really can actually outweigh the annual fee if you can use all the benefits that come with them.

Sean Pyles: It’s a big caveat.

Erin Hurd: It’s a big caveat. Sometimes you really have to work for the value from these cards. But really, when you look at everything you get for that fee every year, it can start to make sense for some people, especially travelers in this case.

Sara Rathner: So the listener was mentioning that they don’t think they use the card enough to make that annual fee worth it. And you did mention that these are especially helpful benefits for frequent travelers. So how can people get the most out of an annual fee of that size? If you don’t travel much, should you just look for another card?

Erin Hurd: Yeah. So one quick thing I do want to point out here is that they were saying that they don’t use the card enough to justify the fee. And I just wanted to point out that actually using the card and utilizing its benefits are two different things. So even if you’re not using the card for everyday purchases, maybe it just kind of sits in your wallet and you use it periodically, it can still be worth carrying because of all the perks that come with it. So I just wanted to point out those differences there.

So, Sara, back to your question about how people can get the most from their annual fee. Well, the first step is you really need to know and understand all of the benefits and perks that come with those cards. And the key point is knowing what is current on the card because credit card benefits really can come and go over time. They can change. Usually, it’s bad news when they change, but sometimes it’s actually good news and perks are added and maybe you’re just not aware. So I really suggest on a semi-frequent cadence just taking a glance at the perks that come with your card and make sure you understand them all and the terms of those perks and to make sure that you’re using them.

Sean Pyles: Well, Erin, I would love to hear how you do this because it’s no secret that you’re a huge credit card nerd. So how do you track the perks that you get from your various cards with annual fees to make sure that you are getting your money’s worth?

Erin Hurd: Yeah, well, I wish I had a more exciting solution for you. I like to use an old-fashioned spreadsheet personally to keep track of all of my cards and their perks. It’s just an easy way to make neat columns and to understand right in front of you the perks. And then I kind of mark off when I’ve used them. So you really have to look at some of the cards on a monthly basis. And again, just really understand the terms of the benefits that come with the cards.

Sara Rathner: And some of those monthly credits, at least in this case, the monthly credits, you can’t bank them. So if you didn’t use the $15 last month, you don’t have $30 the next month to spend too, right?

Erin Hurd: That’s right.

Sean Pyles: OK. And so do you just list out all of the various benefits and maybe you say, “OK, it’s May. I used my Uber credit this month,” just to make sure you are using it? Is that kind of how you do it?

Erin Hurd: Yep, exactly. I just put a nice X right there in that box when I’ve used the credit, and then I look, open it again next month.

Sara Rathner: Yeah, that’s really helpful because at the end of your first year holding a card, you can look back and really see in black and white, did I meaningfully offset the cost of this card through my normal life activities, or is it actually not worth paying this annual fee? And suddenly you have all this data available to you to help make your decision.

Sean Pyles: And if you find that the card isn’t worth it, you can do what’s called a product change, where you can go from a card that has an annual fee to one that potentially has a lower fee or no annual fee. And this is something that our listener, Sue, is interested in doing. This can be a really great way to minimize the amount you are paying in annual fees, but I’m wondering about the points that you already have built up. So for example, would Sue, our listener, lose the points that they have if they do a product change to a different card?

Erin Hurd: Yeah, it’s a great question. It’s a great idea that Sue brought up with the product change. It is a really great option that a lot of people don’t know that they have when they’re deciding at the end of the year if their credit card is worth it or not. And the rules of the product changes really vary by card issuer. In most cases, you’ll have to stay within the same “family” of cards if you want to change that card, but it’s really important to remember that this all varies by credit card issuer. So if you’re looking to cancel or product change a card, you really want to understand what the options are and what the rules are in terms of keeping your points.

Sara Rathner: What about a situation where somebody just plain old doesn’t want to pay an annual fee anymore? They don’t want to do a product change to a card that potentially also has an annual fee for whatever reason. Maybe in the future down the line when Sue has redeemed all of her rewards points, so she doesn’t really want to keep a card open for the purposes of keeping her points active. Let’s talk about canceling your credit card. What are some things to think about before you decide whether or not to do that?

Erin Hurd: Well, the first thing that I would recommend is contacting the issuer and letting them know that you’re thinking about canceling and seeing if they give you any retention offers. Oftentimes, especially with these really high annual fee cards, they really want to keep you around as a customer. And so they’re willing to give you extra bonus points or some money towards a statement credit to help cover part of the annual fee. First, I would really recommend someone just inquiring about any retention offers that might be available.

So then if the person decides they really do want to go ahead and cancel, that’s simple, just call to cancel. But before we do that, we really want to make sure that we’re going to understand the potential impact to the credit score. If it has a substantial credit line and that credit line goes away, that plays into your credit utilization. So that could also affect your score. So those are just some things to be aware of before you pull the trigger and actually say, “Yes, I want to cancel.” But on the pro side, it’s simplified finances. That’s one less credit card to keep track of, everything will be in one place, and it’s one less annual fee to pay.

Sara Rathner: Well, Sue also has an interesting idea for getting her husband a bunch of rewards points with a sign-up bonus of their own, and it seems like they want to use those points in conjunction with the points they’ve already built up to book some travel. So if Sue’s husband gets a sign-up bonus on their own card, would they be able to combine them with the 300,000 points that Sue’s already built up, maybe if they’re authorized users on each other’s accounts, or would they have to book travel through their own accounts’ rewards portals?

Erin Hurd: Yeah, I love the way that she’s thinking. I love always kind of scheming and plotting on how we can get more points and get the most from our points. So the answer is that it depends. There’s a lot of nuances to this. And again, it really comes down to the rules by the issuer of the card. They each have different rules.

Sara Rathner: All right, Sue, you pay for the flights and then your husband gets the card, earns the points and pays for the hotels.

Erin Hurd: Exactly.

Sara Rathner: Sounds pretty good to me.

Sean Pyles: If a little bit complicated to maneuver.

Sara Rathner: Yeah, it can be. This is something that Erin, I know you and your husband do this all the time. It’s something my husband and I do as well. It’s a way to sort of double the bonus in some ways.

Sean Pyles: So, Erin, our listener, Sue, is clearly interested in some creative ways to minimize the expense of annual fees while still getting sweet rewards perks. Do you have any other suggestions for them?

Erin Hurd: Yeah, well, I really loved her train of thought there. Product changing when you’re not getting enough ongoing value from your card is a really great solution. And that’s the first thing that I would think of. So again, just to reiterate, if you’re thinking about the product change, just make sure you’re taking advantage of all those perks that come with the card that you currently have before you downgrade. I do have one other idea for her, and that is to strategize the timing of your initial credit card application.

Let’s say there’s a new card that you’re eyeing and it gives lots of benefits on an annual calendar basis. So you could apply for that card towards the end of the calendar year and you could utilize those perks for that calendar year. And then when the calendar changes to the next year, you would start fresh with those perks and you could utilize them all over again. So that way when your annual fee comes due, you’ve now used those benefits twice instead of once. And then at that point, you can evaluate whether you want to keep the card long term.

Sara Rathner: Yeah, this is absolutely something that I’ve done before. So let’s say a card comes with a $200 or $300 annual statement credit for travel, and you have travel planned at the end of the year, use that credit before New Year’s and then use it again in January to book travel for later in the year. And you’ve just gotten $400 to $600 in value out of the card right off the bat, and you’ve only paid one annual fee.

Erin Hurd: Right, exactly. I love it.

Sara Rathner: Until credit card issuers decide to put some sort of limitation on this, it’s a great tactic.

Sean Pyles: That is a good point that the terms and conditions and rewards are ever-changing. So when you are looking to maximize your points, make sure that you are up to date on what’s happening with your specific card.

Sara Rathner: Yeah, and one thing, pay attention to your emails. If you are a cardholder, you’re going to get emails that will mention to you if there are pretty major changes to terms and conditions of your card. And I know that it’s so easy to just delete these emails without reading, but they are great sources of information.

All right, Erin, well thank you so much for joining us today. Is there anything else that Sue or anybody else weighing this kind of decision should keep in mind as they shop around and consider their options?

Erin Hurd: I think my biggest tip is just to not leave money on the table. And so know the perks of your cards, use them, know the terms of them, and then after you’ve used up all the benefits, then decide if the card is worth keeping in the long run.

Sean Pyles: All right. Well, Erin, thank you so much for joining us.

Erin Hurd: Thank you.

Sean Pyles: And with that, let’s get on to our takeaway tips. Sara, will you please start us off?

Sara Rathner: Sure. First one, get your money’s worth. Understand the benefits of cards with annual fees and make sure you actually use them.

Sean Pyles: Next up, know your options. You might be able to switch to a card that doesn’t have an annual fee, but know what would happen with any accumulated points.

Sara Rathner: Finally, adjust as needed. Canceling a card is always an option. Just make sure you understand the trade-offs.

Sean Pyles: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected] Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast.

Sara Rathner: And here’s our brief disclaimer. We’re not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: And with that said, until next time, turn to the Nerds! This episode was produced by Liz Weston and myself; Kaely Monahan mixed our audio. And a big thank-you to the folks on the NerdWallet copy desk for all their help.