Do Credit Card Annual Fees Count Towards Sign-Up Bonus Requirements?

In a perfect world, that big fee would come in handy.

Every credit card lover has a soft spot in their heart for a good sign-up bonus. Whether you're into cash back cards or travel rewards, that sign-up bonus is full of delicious possibilities.

I've used a single hotel credit card sign-up bonus to cover my lodgings for an entire week on a family vacation. An airline card bonus got us to the U.K. -- in business class.

But as wonderful as sign-up bonuses can be, they all have one major drawback: the spending requirement. The vast majority of credit card sign-up bonuses will require you to spend a set amount of money in a given time period to earn the bonus. For example, a bonus might offer you $150 in cash back if you spend $500 on your new card in the first three months.

The bigger the bonus, the bigger the spending requirement. And the very best bonuses tend to be from premium cards with really big fees. So it's only natural to hope you can put that fee to extra use by chipping away at your spending requirement. Unfortunately, it doesn't work that way.

Annual fees aren't "purchases"

The long and short of it is that spending requirements only look at net purchases. Since your annual fee isn't a "purchase" -- it's a fee -- it won't count towards your sign-up bonus requirements.

Given the size of some of the annual fees out there, this is a major disappointment. Some fees could easily add up to 10% or more of the spending requirement if they counted. But they don't.

These transactions won't count, either

The purchases-only rule also excludes a variety of other transactions from counting towards your bonus requirements. Balance transfers, for example, won't count. Nor will the balance transfer fee that often comes with them.

For example, say you get a card with a 0% intro APR on balance transfers. It also has a $200 sign-up bonus for spending $1,000. No matter how much money you transfer to the new card, it won't earn you the bonus. Only new purchases made with that card will count towards the spending requirement.

Similarly, cash advances -- and their associated fees -- are also excluded from bonus requirements. This applies when you use your card to pull cash from an ATM, as well as certain cash equivalent transactions. For example, if you buy crypto with your credit card, it will likely code as a cash advance, so it won't count towards a sign-up bonus.

Don't forget to factor in returns

When looking at the sign-up bonus fine print, you'll notice that it refers to net purchases, not gross purchases. This is a vital distinction.

Basically, this means that any returns that result in refunds to your credit card are going to negate the purchase. Say you make a $500 purchase that is later refunded. The refund means that $500 no longer counts towards your sign-up bonus requirement.

And don't think you're out of the woods if the return happens after you earn the bonus. Credit card issuers have been known to claw back bonuses if you have returns that put you under the spending requirement -- even months later.

Keep track of purchases -- and non-purchases

One important part of earning a sign-up bonus is keeping track of your spending to make sure you don't miss the deadline.

While some issuers offer designated spending requirement trackers -- a little progress bar that tells you how much more you need to spend to earn your bonus -- others leave it up to you to figure it out.

If there's no dedicated progress bar for your sign-up bonus, you're reliant on the regular spend tracker that most issuers offer. This shows the total of all your card transactions for a given time period. However, it includes all the transactions -- not just purchases.

This means you'll need to remember to subtract any non-purchase transactions, like annual fees, from your calculations. You'll also want to do the same with any returned purchases that were refunded to your card. Forgetting these steps can mean you think you're closer to meeting the requirements than you really are, which can mean you miss out on a lucrative bonus if you don't spend enough in time.