There are lots of credit card companies that require you to pay an annual fee to use their service. Fees range from $0 up to $500. Sometimes, the annual fees for some credit cards can be expensive enough to sway you from even considering those cards.
Many credit cards, however, don’t charge annual fees, so it isn’t too tough to find a good credit card with no annual fee. But before you pick a no annual fee credit card, you should be aware of why a credit card company might want to impose an annual fee on your card. You should also be aware of the payment options for cards without annual fees. Check out our tool below to compare no annual fee credit cards and see which credit card might be best for you.
Why do some cards have annual fees?
Any type of credit card can have an annual fee. But why would you ever choose a card with an annual fee when you have your choice of credit cards with no annual fee? There are a few particularly common scenarios in which a card might have an annual fee:
You want a premium card with lots of benefits and high credit score requirements
You want a secured credit card for people with bad credit scores
You want to use a charge card
Premium cards have annual fees in part to offset the cost of rewards and rebates. So before you choose a premium card with an annual fee, you need to decide if the benefits that you will receive will eventually offset the cost of the annual fee. Premium cards can be very expensive, so you will need to pick a premium card with rewards that are relevant to you. For example, if you travel a lot then an airline mile credit card would make sense for you.
Generally, a secured credit card is targeted towards a customer with a bad credit score. The credit card company is taking a risk by giving that customer a credit card, since a bad credit score can indicate an unreliable debtor. Credit card companies impose annual fees to ensure that they are making a profit with an unreliable debtor.
Secured credit card annual fees can be very high, so you should be sure to do research before choosing a secured credit card. They can also have very high interest rates. If you can avoid getting a secured credit card, you should probably get a different credit card, or use your secured credit card to improve your credit score so you can eventually get a cheap credit card.
Charge cards also require a high credit score and good payment history. Banks charge annual fees as another prohibitory measure in determining who can have a charge card. They don’t have interest fees because you cannot make late payments with charge cards. You have to repay the entire amount that you have used at the end of the credit period. This is why charge cards are reserved for those with good credit scores: you need to be very good at keeping track of your expenses when you use a charge card, and you need to be able to repay your entire debt in full on a monthly basis.
How do banks profit from no annual fee credit cards?
All credit cards, including no annual fee credit cards, still charge APR, or Annual Percentage Rates. APRs determine how much your bank collects based on the interest accruing on your loans. You may have several APRs on one credit card. For example, you might have
A low APR for balance transfers (moving all or part of a balance between accounts)
A very high APR for cash advances
A medium APR for purchases
These values determine how much interest your bank can collect on your various transactions.
Do annual fees affect APR?
In short, not necessarily. Annual fees don’t automatically defray the costs of your APR. Compare the interest rates on the following cards. Some credit cards with annual fees can have even higher APRs than some no annual fee credit cards. While it’s hard to give a generic quote for APR (since APR is based on credit score, payment history, etc.), you can see that you would have to make a careful study before choosing a credit card based on its annual fee.
Credit Cards with No Annual Fees
The following banks offer some options in no annual fee credit cards. However, you should be careful when shopping for a no annual fee card. In most cases, a credit card company offers more than one no annual fee credit card, and some “no annual fee” cards actually do charge a fee after the first year.
And in some cases, you can actually have annual fees removed from your credit card. Some credit cards only require annual fees in the first year of card use. After the first year, the bank may determine that you are a reliable borrower, so they will cancel your annual fee. And in some cases, you can call your bank and ask that an annual fee be cancelled. The bank won’t always agree, but sometimes they only need a little bit of prodding before they will cancel the fee.