NerdWallet's Smart Money Podcast - Nerdy Tips on Tipping, and Managing High Credit Card Annual Fees

Episode Date: June 26, 2023

Feel less awkward about tipping with our Nerds’ tipping tips. Then learn about credit cards with high annual fees. 01:12 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. 07:36 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. 19:16 Takeaway Tips. In this episode, Sean, Liz, Sara and Erin discuss: the etiquette of tipping service workers; the economics of tipping; waitstaff gratuities; profit margins; CEO salaries; credit cards with high annual fees; credit card rewards points; travel rewards and hotel perks; product changes; canceling credit cards; credit card terms and conditions; credit card authorized users; and how credit cards can impact your credit score. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Have we reached the tipping point when it comes to tipping service workers? I mean, 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, Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Liz Weston. And I'm Sean Piles. 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.

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 at podcast at nerdwallet.com. In this episode, I'm joined by our co-host, Sarah 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. You already have. That's fine. Okay. 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? 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. I mean, tipping stations and jars and touchscreens seem to be everywhere nowadays. And, you know, 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? Okay, so where do you fall? 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, shout out 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? 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 got to wonder, when does this stop? Yeah, we gave the example of tipping at a drive through 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 thus, they 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? 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, oh, really? Yes. 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.

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. 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 healthcare 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 non-existent. 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 don't you do that? Yeah. I mean, we look at other countries and we see things like living wages, healthcare, 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 slash podcast.

Yeah, 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 20 on the dresser should be fine. And for rideshare drivers, again, aim to tip between 15 and 20%. 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. Person on the receiving end of that tip will very likely appreciate it.

Okay, well, let's get on to this episode's money question. 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 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? To help us answer Sue's question, on this episode of the podcast, we're joined by credit cards nerd Aaron Hurd. Welcome back to Smart Money, Aaron. Hey, thanks so much for having me, Sarah and Sean.

Aaron, 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. Okay, 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? 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. It's a big caveat. 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. 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? 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, you know, 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, Sarah, 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 the benefits and perks that come with those cards. And the key point is knowing what is current on the card, right? 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, you know, on a semi-frequent cadence, kind of 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. 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? 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 kind of make neat columns and to understand, you know, 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. And some of those monthly credits, at least in this case, the monthly credits, you can't like bank them. So if you didn't use the $15 last month, you don't have $30 the next month to spend too, right? That's right. Okay. And so do you just list out all of the various benefits and maybe you say, okay, 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? Yep, exactly. I just put a nice X right there in that box when I've used the credit and then I open it again next month. 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. 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? 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. The rules of the product changes really vary by card issuer. In most cases, you'll have to stay within the same quote unquote 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 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. 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 a credit card. What are some things to think about before you decide whether or not to do that? 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 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, you know, 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. Well, Sue also has an interesting idea for getting their husband a bunch of rewards points with a signup 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 signup 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? Yeah, I love the way that she's thinking. I love always kind of scheming and plotting and 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. All right, so you're on you pay for the flights and then your husband gets the card, earns the points and pays of the card. They each have different rules. All right, Sue. So you pay for the flights and then your husband gets the card, earns the points and pays for the hotels. Exactly. Sounds pretty good to me. If a little bit complicated to maneuver. Yeah, it can be. I mean, this is something that, Aaron, 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. 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? 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. So 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 kind of 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. Yeah, this is absolutely something that I've done before. So let's say a card comes with like 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. Right. Exactly. I love it. Yeah. Until credit card issuers decide to put some sort of limitation on this, it's a great tactic.

That is a good point, is 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. Yeah. And one thing, I mean, 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, you know, 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? 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. All right. Well, Erin, thank you so much for joining us. Thank you.

And with that, let's get on to our takeaway tips. Sarah, will you please start us off? Sure. First one, get your money's worth. Understand the benefits of cards with annual fees and make sure you actually use them. 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. Finally, adjust as needed. Canceling a card is always an option. Just make sure you understand the trade-offs. 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 podcast at nerdwallet.com. Also visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. 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. And with that said, until next time, turn to the nerds. This episode was produced by Liz Weston and myself, Kaylee Monaghan mixed our audio, and a big thank you to the folks on the NerdWallet copy desk for all their help. This episode was produced by Liz Weston and myself, Kaylee Monaghan mixed our audio, and a big thank you to the folks on the NerdWallet copy desk for all their help.