What Is an Annual Membership Fee for Credit Cards?

Find out what it means if your credit card has an annual fee and how much it typically costs

When you’re looking at credit cards, you’ll probably notice 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? Simply put, it’s a yearly cost you pay to use certain cards from some issuers. But is having one beneficial for your situation? Read on to find out. 

Do All Credit Cards Have Annual Fees?

Not all credit cards charge an annual fee. In fact, many Capital One cards don’t have annual fees

For cards that do charge a fee, the amount can vary. Generally, you might see some annual fees as low as $35 and others as high as $500 or more. If you’re wondering about an average, the Consumer Financial Protection Bureau says the average annual fee charged in 2020 was $94.

Why Do Some Credit Cards Have Annual Fees?

Some credit cards have annual fees because they offer extra benefits. These may include things like cash back, miles rewards or free checked luggage on flights. 

Cards for people who are building or rebuilding their credit may also charge annual fees. They may not come with rewards, but might offer other features that make you decide the annual fee is worth paying. 

Decide If a Card With an Annual Fee Will Benefit You

To decide if a credit card with an annual fee is right for you, you may need to do a bit of math.

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. Especially if you consistently make your payments on time and use your card responsibly.

Calculating the perks of a travel rewards 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 miles or points for a better understanding of how much you could earn based on your spending habits. And again, remember that making your payments on time can help you maximize those rewards.

If you’re building or rebuilding your credit and 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 if the perks offered outweigh the cost of the fee.

Can Credit Cards With Annual Fees Be Avoided?

There are definitely cards you can apply for that simply don’t charge an annual fee.

If you currently have a card that charges an annual fee, you might consider asking your card issuer if they can switch you to one that doesn’t. Just keep in mind that 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 even cancel the card. However, keep in mind this could affect your credit score. That’s because once you lose access to the card’s credit limit, your credit utilization ratio could go up. This ratio reflects the amount of credit you have available compared with the amount of credit you’re using. And it’s an important part of your credit score. 

Canceling a card can also impact the average age of your open accounts and the types of credit you have. And both of those can have an impact on your credit score.

How to Pay the 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 issuers that divide the annual fee into monthly payments. Be sure to check with the card issuer to find out if this is the case.

Either way, you pay the fee just like you pay for purchases and other transactions on your monthly statement.

Bottom Line on Annual Fees

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. 

Before you apply for a credit card, determine whether it charges an annual fee that matches your spending habits and lifestyle. Ultimately, it’s up to you to decide if the value of the card’s rewards and other features surpasses the cost of the fee.

Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention

Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

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