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Like other membership perks and incentives, many credit cards waive the annual fee, which can range from $29 to thousands of dollars depending on the card and the benefits it offers. Depending on your credit history, budget and spending needs, a credit card with no annual fee can offer some savings, which can be applied to paying down your balance or other expenses.
As with any credit card, weighing all the related fees, costs and membership benefits can help you decide whether choosing a card with no annual fee is the right choice for you. Here are some important factors to consider when making your decision.
Saving a few dollars every year on an annual fee, especially if you have a few cards and are carrying balances can be tempting. But it’s important to remember that no annual fee does not mean no fees. A credit card annual fee is like a membership fee to a club or service provider; the fee gets you in the door and buys you the privilege of membership, which may include certain free perks like better customer service or lower rates on other fees and services. Still, you have to pay for any and all fees associated with your purchases and membership.
Every credit card is different, and fees can vary significantly depending on the issuer and your personal credit history. Generally speaking, the annual fee does not cancel out other account-related charges such as late, interest and over-the-limit fees. Many cards offer introductory rates that may waive interest on balance transfers for a predetermined amount of time or offer grace periods for certain fees, but it is important to always read the fine print and remember that you will still be responsible for any fees associated with the account.
The annual fee falls more into the optional perks category of credit cards than in the account maintenance fee column, so it is important to remember that a card with no annual fee does not automatically cancel out the other costs of keeping the account open unless clearly stated by the issuer. Make sure you know exactly what you will be expected to pay and when you will be expected to pay it before applying for a new credit card in order to avoid unnecessary surprises on your billing statement.
Like a membership to a fancy gym or club, credit cards with an annual fee usually offer a range of perks, from travel points and cash back, to lower interest rates and discounts on specific products and services. Usually, the higher the annual fee, the greater the quality of membership perks and access to exclusive services — and potential savings. Like other credit card benefits such as prime interest rates, most cards with attractive benefits and rewards incentives require good to excellent credit in order to qualify.
However, some credit card companies also extend credit to consumers with average to poor credit at higher interest rates and annual fees, which may offer little to no rewards in categories like cash back for purchases or travel miles, but provide the opportunity to rebuild or establish credit history over time. Some cards in this category bill the annual fee in monthly installments rather than in a single charge once a year.
In that case, it is important to budget for the additional charge each month whether you use the card or not, which will affect and lower your available monthly balance unless you choose to pay it off in a single payment.
The benefits and rewards associated with no annual fee credit cards vary from card to card. While some cards will waive an annual fee in lieu of other common perks like cash back, travel perks, and discounts at hotel chains, car rental agencies, movies, retailers and even grocery stores, other no annual fee cards offer benefits like free access to credit scores and longer low or fixed interest rate introductory periods, in addition to other rewards and benefits. Depending on the card and your credit score, you may be giving up additional rewards and membership perks like travel mileage in order to save on the annual fee.
That depends. If you already have other cards that offer attractive benefits and member rewards, choosing a card with no annual fee to take advantage of a good introductory balance transfer rate or free credit monitoring services, for example, may be a good bet. If your credit rating is less than perfect or you are trying to rebuild your credit, paying an annual fee in exchange for credit may be your only option and makes more sense in the short term.
While rewards programs and membership perks are great incentives, it’s always advisable to familiarize yourself with all the associated fees and your projected spending to calculate how much you will actually end up spending with each card. Take all the additional bonuses and perks off of the table for a moment and figure out how much a card will actually cost you after you factor in interest rates and other associated fees. Once you’ve arrived at that number, factor in the potential costs/savings associated with the added rewards programs to figure out if they are really worth it.