What is a credit card annual fee and is it worth it?
September 21, 2023 4 min read
When you’re looking at credit cards, you’ll probably notice that some include an annual fee. And you may find that the extra perks those cards offer make the fee worth paying.
So what is a credit card annual fee? And is having one beneficial for your situation? Read on to find out.
- Cards with annual fees often offer rewards, a welcome bonus or other perks.
- Annual fees usually appear on credit card statements once a year.
- Not every card has an annual fee. You can avoid paying an annual fee if you use one that doesn’t.
- To decide whether an annual-fee credit card is worth it, consider your financial situation, how you plan to use it and whether the benefit is worth the extra cost.
What is an annual fee?
An annual fee is a cost you pay credit card issuers for having certain cards. It’s normally due once a year, but some issuers ask for monthly installments.
Annual fee amounts can vary. Generally, you might see some annual fees as low as $35 and others as high as $500 or more. The Consumer Financial Protection Bureau said in its most recent report to Congress that the average annual fee charged in 2020 was $94. More recently, a Nerdwallet analysis showed that cards with annual fees had an average charge of $128.
Do all credit cards have annual fees?
Why do credit cards have annual fees?
How to decide whether a card with an annual fee is worth it
There can be advantages to having any credit card. But it’s up to you to decide whether a card is worth it.
If you’re interested in a card with an annual fee for the financial benefits, you might consider a rewards card, like a cash-back or points card. With a cash-back card, it’s relatively simple to calculate whether the rewards offset the cost of the annual fee. Depending on how much you spend on your card, the cash-back rewards you earn may offset the yearly fee entirely.
Calculating the perks of a travel rewards card or points card may take a bit more effort. If the card has substantial rewards or a bonus offer, you may earn enough to cover the annual fee plus some extra. Consider looking into the redemption value of rewards for a better understanding of how much you could earn based on your spending habits.
If your goal is to build or rebuild your credit and you find an annual-fee card you might be eligible for, you may want to do some research. Comparing it to similar cards without an annual fee can help you decide whether the perks offered outweigh the cost of the fee.
The keys to getting the most out of any credit card are ensuring you have the one that makes the most sense for you and using your card responsibly.
Credit card annual fee FAQ
Here are some frequently asked questions about credit card annual fees:
When do you pay an annual fee on a credit card?
If you have a card with an annual fee, it likely appears on your monthly statement once a year. Typically, the fee shows up on your first statement after you open the account and then every 12 months after that.
There are also some card issuers that divide the annual fee into monthly payments. Be sure to check with the card issuer to find out whether this is the case.
Either way, you pay the fee in much the same way you pay for purchases and other transactions on your statement.
Can credit cards with annual fees be avoided?
To completely avoid a credit card’s annual fee, you could apply for a card without one.
If you currently have a card that has an annual fee, you might consider asking your card issuer whether they can switch you to one that doesn’t. Just keep in mind that it may not mean getting a refund for an annual fee you’ve already paid.
If all else fails and you’re not comfortable paying an annual fee the next year, you could cancel the card. However, keep in mind this could affect your credit score. This is because closing a credit card can impact things like your credit age, credit mix, credit utilization ratio and credit history.
Credit card annual fees in a nutshell
Not every credit card charges an annual fee. But based on your needs, you may find those that do are worth it, thanks to the benefits and rewards offered.
As you compare credit cards, determine whether they charge an annual fee that matches your spending habits and lifestyle. Ultimately, it’s up to you to decide whether the value of a card’s rewards and other features surpass the cost of the fee.