What is a credit card annual fee and is it worth it?
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 would having a credit card with one benefit your situation?
Key takeaways
- 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 a card that doesn’t have one.
- To decide whether an annual-fee credit card is worth it, consider your financial situation, how you plan to use the card 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. You might see some annual fees as low as $35 and others as high as $500 or more. The Consumer Financial Protection Bureau (CFPB) said in its most recent report to Congress that the overall average annual fee in 2022 was $105.
Do all credit cards have annual fees?
Not all credit cards charge an annual fee, including many Capital One cards. View important rates and disclosures. And some card issuers may waive a card’s annual fee for the first year as an introductory offer. 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?
If a credit card for people with excellent scores has an annual fee, it’s likely because the fee offsets the benefits the card offers, like:
- A travel credit card with generous miles rewards, a welcome bonus or premium perks like airport lounge access
- A cash back credit card offering a high percentage of cash back on everyday purchases
If a credit card for people with bad credit scores has an annual fee, it’s likely because it offsets the risk to the card issuer, like:
- A secured credit card that helps users rebuild credit scores until they’re able to qualify for another card
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.
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 to better understand how much you could earn based on your spending habits.
If your goal is to build or rebuild your credit and you find a card with an annual fee 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 key to getting the most out of any credit card is ensuring you have the one that makes the most sense for you. And, as always, it’s important to use 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.
Some card issuers 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 avoid an 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 a different card that doesn’t have a fee. In that case, you may not get 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. But keep in mind this could affect your credit scores. This is because closing a credit card can impact things like your credit age, credit mix, credit utilization ratio and credit history.
Can a credit card annual fee be waived?
In some cases, a credit card annual fee may be waived. It depends on the card and card issuer, but it might happen when:
- The card comes with an introductory offer waiving the fee
- The cardholder is a qualifying military service member
- The cardholder contacts the issuer with a request to waive the fee, and the issuer agrees
When is it a bad idea to pay an annual fee on a credit card?
If you already have a card with an annual fee, the fee isn’t normally negotiable. So it’s best if you can determine before you apply whether a card with an annual fee is worth it to you.
Depending on what type of credit card it is, you can consider things like your spending habits, budget and whether the rewards or benefits you’d receive are worth the price of the annual fee.
Credit card annual fees in a nutshell
Not every credit card has an annual fee. Cards with an annual fee likely come with something in exchange, like extra cash back or elevated miles rewards. It’s up to you to determine if those benefits are worth it to you.
If you’re looking for a new credit card, you can compare Capital One credit cards to find one that’s right for you. Then you can see if you’re pre-approved for card offers before you apply. Pre-approval is quick and won’t hurt your credit scores.