What Is a Credit Card Annual Fee?
An annual fee is a set cost you are charged yearly for using certain credit cards. That fee is applied to your account as soon as you are approved for a card if it has an annual fee. You will see that same charge on your card anniversary each year.
If you don’t pay the annual fee, it will accrue interest and could affect your credit score, like any other unpaid charge on your credit card bill. An annual fee will also 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 signing up.
Pros of No-Annual-Fee Cards
- No extra charge to remember or budget for
- Can help build credit history
- No extra fee to impact credit utilization ratio
Cons of No-Annual-Fee Cards
- May have fewer perks than cards with annual fees
- Could have smaller welcome offer
- May outgrow the card’s benefits over time
Common Benefits of No-Annual-Fee Credit Cards
A credit card with no annual fee can be worth it, especially if you’re looking to boost your credit score, increase your credit limit or just add another solid card to your wallet. Here are the common benefits of a no-annual-fee credit card:
- More rewards value: It depends on the card, but you could come out ahead with a no-annual-fee card compared to one with a yearly cost. You won’t have that expense to deduct from any rewards you earn, so it’s worth doing the math to see if a no-annual-fee card could pay off for you.
- Easier to budget: No annual fee means one less thing to remember to pay. If you’re watching your spending or have a big purchase to cover, this is one less expense to deal with.
- Can build credit: If you’re looking to build credit history or boost your credit, a no-annual-fee card could be the way to go. Just pay your bill in full and on time and you’ll see improvements to your credit score.
- 0% APR Intro offers: Several no-annual-fee cards come with an intro 0% APR for a year or even longer. This can help you pay off a large purchase over time without paying extra for interest.
- Decent travel benefits: Some no-annual-fee cards offer nice travel rewards and other perks, without the yearly charge. Look for cards with no foreign transaction fees and decent rewards rates that fit your travel habits, especially if you don’t want the hassle of managing more complex travel rewards cards.
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When to Use No-Annual-Fee Cards
A no-annual-fee card isn’t for everyone, but here are some instances when you might want to use one:
- You’re a new credit user: If you’re just dipping your toe in the credit card game, starting with a no-annual-fee credit card can be an affordable way to do it.
- You only use cards occasionally: 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, a no-annual-fee card can be useful in cases of emergencies or for added protection online and for gas station purchases.
- You want to consolidate debt: A no-annual-fee card can come in handy if you qualify for one with a 0% intro APR offer on balance transfers. These can give you a long time, usually 12 to 18 months, to pay down your bill—without getting hit with new interest charges. Just be aware that if you don’t pay your bill in full before the intro period ends, you’ll start incurring interest.
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How to Choose the Best No-Annual-Fee Credit Card for You
With so many cards and benefits available, it can be hard to choose a credit card, but here are some factors to consider to pick the right no-annual-fee credit card for your situation:
- Rewards rates and categories: Check out what types of rewards various cards offer and compare them against your typical spending. For example, if you commute a ton, look at cards with higher rates on gas purchases. If you love to dine out, look for a dining credit card that rewards you more for doing so.
- Sign-up bonus: Many cards offer enticing welcome offers, so do a little math and see which ones you can easily meet with your regular spending. If you’d have to spend $4,500 in three months and that’s way outside your budget, for example, you’d be better off going for a smaller welcome bonus with a spending threshold you can meet.
- Intro APR offer: If you have a big purchase coming up, look for a no-annual-fee card with a 0% intro APR offer to take advantage of a no-interest period to pay down that expense.
- Card upgrades: Not all cards have upgraded versions, but if you think you might want to move up to a card with bigger perks down the road (often in exchange for an annual fee), see if the card you’re interested in has an upgraded version you could move to in the future.
Are Credit Cards With Annual Fees Worth It?
A credit card with an annual fee is worth it for people who can get more out the card’s benefits than what they spend on the annual fee. For example, if a card’s annual fee is $95 but you can easily get $300 out of rewards or other perks, that annual fee is probably worth it. Look at the full scope of a card’s benefits and calculate the value you’re likely to get. This could include things like cash back earned, a discounted membership, anniversary points or even a free hotel stay, depending on the card.
A credit card with an annual fee is typically not worth it for people who don’t spend a lot on their credit cards or can’t make back that cost with the card’s perks.
A credit card with an annual fee may not be worth it if you:
- Don’t spend much on credit cards
- Don’t want the hassle of calculating or earning rewards
- Can’t earn back the fee with the card’s perks
Quick Tip
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 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.
I Used to Hate Annual-Fee Credit Cards — Here’s Why I Was Wrong
Methodology
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.