Are Credit Cards With Annual Fees Worth It?
One of the top questions among credit card users is, “Are annual fees worth it?” When you are trying to save money and stick with a budget, we can see why paying money to use plastic seems like a waste. However, when used wisely, an annual fee card can save money and earn you more cash back than a no annual fee card can.
If you’re on the fence about an annual fee card, take a look at the bonuses and additional perks that come included, then see if you can assign a tangible dollar value to those features. Collectively, you may find that you’re getting more value out of the card than the annual fee is worth.
Common Benefits of No Annual Fee Credit Cards
In many cases, paying an annual fee is worth it if you use your card wisely and can maximize the card’s benefits. But what is a no annual fee credit card worth? If you are new to using credit cards or are looking for a card to boost your credit, no annual fee cards have many benefits too. Here are the top benefits of no annual fee cards:
- Rewards: No annual fee cards offer you more back on your spending than if you just use your debit card for eligible purchases. If you switch your main spending to a rewards credit card rather than your debit card, you can earn several hundreds of dollars back each year.
- Travel: Look for cards that offer travel perks, like $0 foreign transaction fees or travel protection. The Bank of America Travel Rewards credit card has no annual fee card offer 1.5 points per dollar spent on eligible purchases along with $0 foreign transaction fees.
- Cash Back: Some cards offer maximum cash back without an annual fee. The Bank of America Customized Cash Rewards credit card has rotating cash back categories that earn 3% back in the category of your choice.
- 0% APR Introductory Rate: Looking to save on a large purchase? Several no annual fee cards also come with an introductory 0% APR for 12-15 months. This can help you pay off a large purchase without paying extra for interest.
- Easier to Budget: If you are on a tight budget, a no annual fee card can give you credit card benefits without adding any burden to your existing budget.
- Building Credit: Many of the top annual fee cards require excellent credit, meaning many applications will be rejected due to not having a well-established credit history. You can build up your credit score and history with a no annual fee card.
When to Use No-Annual-Fee Cards
An annual fee rewards card isn’t for everyone, but a card without an annual fee might be a better choice for the following:
- New Credit Users: If you are just dipping your toe in the credit card game, start with a no annual fee card with a sweet signup bonus.
- Occasional Credit Card Users: If you don’t whip out plastic for every purchase, then a rewards card with an annual fee might not be worth your time. Instead, keep a no annual fee card in your wallet in case of emergencies or for added protection on online and gas station purchases.
- People Consolidating Debt: If you are trying to tackle your debt load this year, then you don’t need an annual fee card to do so. Instead, look for a card that comes with a 0% intro APR for transfer balances. You will have to pay a fee for the initial balance transfer, but the extended 0% APR can help you pay off your debt without worrying about costly interest charges.
This list does not represent all of the no annual fee credit cards available today, but rather some of our all-around favorites. We took a look at cards that are fee-free while also offering great rewards and cardholder benefits. Many of these benefits make them competitive even against some of the annual fee cards on the market.
Between the cash back offered and benefits provided, these cards can both save you money each year and make life easier every time you spend.
No-Annual-Fee Credit Cards FAQ
Credit cards without an annual fee are a good choice for individuals new to the credit card space. These cards can save you money automatically over a card with a fee. We’ve gathered everything you need to know about choosing a no annual fee credit card so that you can make the best decision for your finances.
An annual fee is a set charge that occurs yearly. For credit cards with annual fees, the charge is applied to your account as soon as you are approved. You will see that same annual fee charged on your card anniversary. If you do not pay the annual fee, you will start to pay interest on it. Since your annual fee is applied to your credit card balance automatically, it will affect your credit card limit. For example, if you applied for a card with a $5,000 credit limit and the annual fee is $95, your new credit limit will be $4,905 until you pay your bill. Keep this in mind if you are hoping to use your new card for a big purchase right after signup.
Many cards charge annual fees so they can offer more rewards to cardholders. In order to attract new cardholders with spectacular sign-up bonuses and perks, they need to offset the cost with annual fees.
You should see the charge for your annual fee on your first credit card statement. Some cards waive the annual fee for the first year. The annual fee for that card would then occur on your first anniversary of opening the card. Usually, you will see a one-time charge on the first day of your anniversary month. For example, if you opened your new card on January 15th, 2020, you should expect a one-time charge for the annual fee the first week of January 2021. Many cards offer anniversary gifts each year, such as a travel credit. If your card does offer annual credits, they will be available at the same time as your annual fee is charged.
With rewards cards, the term “other purchases” typically refers to eligible purchases made outside of bonus categories or spending categories. Cash rewards rates are usually lowest on spending categorized as “other purchases.”
A statement credit is money paid to your account by your card issuer. It essentially works the same as a cash payment to your account. Some rewards card issuers like American Express often offer statement credits as a payout for cash rewards or other point redemption. Statement credit can be used to pay down your card balance or they can remain on your statement as a positive account balance for future purchases.