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 typically 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 card options with no annual fee.
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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 each year to have a certain card. Credit card 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
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 are typically charged when you open the account. This amount is then typically applied to your card’s balance, which can be found on your credit card statement.
Depending on the issuer, you might pay the annual fee as part of your first bill. After one year as a cardholder, the annual fee is generally charged again.
Do all credit cards have annual fees?
Not all credit cards charge an annual fee. 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?
Credit cards can have annual fees for a variety of reasons, such as:
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Risk mitigation: To manage lending risk, certain credit cards might charge an annual fee.
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Rewards: Credit cards that charge annual fees tend to have more generous rewards programs, such as cash back or miles.
- Additional benefits: Certain credit cards with annual fees might offer elevated travel features and additional benefits, like entry to airport lounges or access to exclusive events.
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 whether an annual fee credit card is worth it for you:
Are the rewards worth the annual fee?
You might consider paying an annual fee in exchange for a credit card that offers generous rewards and premium benefits. To determine whether the rewards justify the annual fee, you can calculate the value of the rewards:
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Cash back credit cards: 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 $10,000 annually, you could earn $200 in cash back rewards. That would cover the fee and leave you with an extra $105.
- Travel rewards credit cards: The math for travel rewards cards isn’t as straightforward because miles vary in value depending on how you redeem them. Comparing redemption values can help you estimate how much you could earn based on your spending and travel habits. Some travel cards could offer extras like airport lounge access or credits toward Global Entry or TSA PreCheck® fees.
Does the card offer a sign-up bonus?
Sign-up bonuses—also known as welcome bonuses—are offered to new cardholders as an incentive for opening an account and meeting certain spending requirements.
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 the annual fee.
Will you use the card to help build your credit?
Credit cards are a tool you can use to help build your credit. 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 no matter which card you choose, using it responsibly is key to building good credit.
Credit card annual fee FAQ
Here are the answers to 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, however, 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 scores.
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 whether they can switch you to a no-fee card. But if you’ve already paid the annual fee for the year, you may not get a refund.
Can a credit card annual fee be waived?
Yes, it’s possible for a credit card annual fee to be waived. A credit card issuer might be willing to waive an annual fee in certain circumstances. But it depends on the issuer’s policies and the cardholder.
Is there an alternative to an annual fee credit card?
Yes, there are alternatives to credit cards with annual fees. 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. View important rates and disclosures.
With VentureOne, you earn unlimited 1.25 miles per dollar on every purchase and unlimited 5 miles per dollar on hotels, rental cars, vacation rentals and activities 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 whether 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 cash back on every purchase, every day with a cash rewards credit card.
- Earn cash back, whether you’re going out or staying in, with a dining and entertainment credit card.
