What is a credit card annual fee and is it worth it?
When looking at credit cards, you’ll notice that some charge an annual fee. In some cases, cards with annual fees offer elevated rewards and other benefits. It may help to think of it as a yearly membership fee.
Learn how annual fees work and whether having an annual fee credit card is right for you.
What you’ll learn:
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Cards with annual fees often offer rewards, a welcome bonus or other benefits.
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Annual fees usually appear once a year on credit card statements.
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Not every card has an annual fee, and many issuers offer cards with no annual fee.
- To decide whether an annual fee is worth it, consider your budget, how you’ll use the card, and whether the rewards and benefits might offset the cost.
What is an annual fee on a credit card?
An annual fee on a credit card is the price you pay a card issuer to have certain cards. Annual credit card fee amounts can vary. Survey data from the Consumer Financial Protection Bureau (CFPB) shows that the average annual credit card fee ranges from $94 to $157, depending on the size of the issuer.
How do credit card annual fees work?
An annual credit card fee is normally due once a year, but some credit card issuers ask for monthly installments. Annual fees often support benefits and services, such as:
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Rewards
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Travel perks, such as airport lounge access
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Exclusive access to events
Do all credit cards have annual fees?
Not all credit cards, including many Capital One cards, charge an annual fee. View important rates and disclosures. You can check your credit card’s terms and conditions to understand what fees may apply to your account.
Why do credit cards have annual fees?
Issuers determine the annual fee for their credit cards. An annual fee might help fund a card’s rewards and benefits. Or the fee may help mitigate lending risks.
Is it worth paying a credit card annual fee?
There can be advantages to having any credit card. But it’s up to you to decide whether a credit card with an annual fee is worth the rewards and benefits it offers. Here are some things to consider when deciding if an annual fee credit card is worth it for you.
Are you looking to earn cash back or miles rewards?
With a cash back card, it’s relatively simple to calculate whether the rewards offset the cost of an annual fee. Say you have a cash back card with a $95 annual fee that allows you to earn 2% back on all purchases. If you spend at least $10,000 annually, you’ll earn $200 in cash back rewards. That covers the fee and leaves you with an extra $105.
The math for travel rewards cards isn’t as straightforward, because the value of miles can also depend on how you redeem them. You could compare redemption values to better understand how much you could earn based on your spending habits. Some travel cards could offer access to airport lounges or credits to cover things like Global Entry or TSA PreCheck® fees.
Does the card offer a sign-up bonus?
Sign-up bonuses, sometimes referred to as welcome bonuses, are perks offered to new cardholders. To earn a sign-up bonus, you typically have to open a new credit card account and spend a certain amount on the card within a set period of time.
If you meet the requirements, you’ll generally earn a bonus in the form of cash back, miles or points. Depending on the offer and the card, a sign-up bonus may help offset an annual fee.
Will you use the card to build your credit?
If your goal is to build credit, consider finding a card that fits your credit profile. Applying for a card that’s geared toward your credit level may help you improve your chances of being approved and avoid unnecessary hard inquiries. And remember that no matter which card you choose, using it responsibly is key to building good credit.
Credit card annual fee FAQ
Here are some frequently asked questions about credit card annual fees.
Can you cancel a credit card with an annual fee?
You can cancel a credit card with an annual fee. Before you cancel a card, it’s helpful to consider more than just the fee—like how it could affect your credit. The CFPB says canceling a credit card can reduce your overall available credit. And this may increase your credit utilization ratio—a key factor in calculating your credit score.
Closing a credit card account may also lower your credit age, which can be another factor that affects credit scores. Choosing a credit card product change instead of closing an account may help you avoid these credit score impacts.
How do you avoid a credit card annual fee?
If you want to avoid an annual fee, you can apply for a credit card that doesn’t charge one. If you already have a card with an annual fee, you might consider asking your card issuer if they can switch you to a no-fee card. Keep in mind that if you’ve already paid the annual fee, you may not get a refund.
Can a credit card annual fee be waived?
Credit card issuers might be willing to waive an annual fee in certain circumstances. But it depends on the cardholder and the issuer’s policies.
Is there an alternative to an annual fee credit card?
Many cards don’t charge an annual fee. And cards with no annual fee may still offer great rewards and benefits. Take the Capital One VentureOne card, for example.
With VentureOne, you can earn unlimited 1.25 miles per dollar on every purchase and unlimited five miles per dollar on hotels and rental cars booked through Capital One Travel. All with no annual fee. View important rates and disclosures.
Key takeaways: Annual fees on credit cards
Not all credit cards charge an annual fee. But if you find a card with benefits and rewards you’ll take advantage of, the annual fee might be worth it.
If you’re looking for a new credit card, Capital One has options for rewards cards that may fit your lifestyle.
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See if you’re pre-approved for rewards cards, with no harm to your credit scores.
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Explore travel and miles rewards credit cards with unlimited miles you can actually use.
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Earn unlimited 1.5% cash back on every purchase, every day, with a cash rewards credit card.
- Earn unlimited cash back whether you’re going out or staying in, with a dining and entertainment credit card.
