Pros and Cons of No Annual Fee Credit Cards

Editorial Note:

Updated: November 30, 2022

No annual fee credit cards are cards with which you don’t have to pay a fee once a year to use them. There is a lot of misinformation about these cards, so we’ve compiled a list of advantages and disadvantages below.

Let’s review them, and by the time we’re done, you should understand the benefits and limitations of these cards.

Pros of No Annual Fee Cards

1. They Save Money

Removing an annual recurring cost from your credit card can sometimes save you up to $500 per year. You could use that money for something else.

2. No Need to Justify Keeping This Card

If you use your card occasionally, it may be hard to justify paying the annual fee. You may be spending small amounts on the card, and your purchases don’t meet the threshold to qualify for rewards. It makes better sense to use a card without an annual fee since it’s difficult to give a good reason for paying an annual expense in these cases.

3. Builds Up Your Credit Card History

Your activities using no-fee cards are reported to the credit bureaus over time. This information is used to create your credit history, which helps lenders judge your credit risk.

4. Premium Rewards with No-Fee Cards

No annual fee card perks aren’t limited to only basic benefits, like car rental insurance and fraud protection. There is a range of high-quality rewards on cards that don’t have an annual fee.

You can get flat-rate cash back, tiered cashback based on categories, or a sign-up bonus, for example. It may be possible to find a no annual fee card that offers the kind of benefits that you want.

Cons of No Annual Fee Credit Cards

1. Smaller Sign-Up Bonus

A no-fee card will have a smaller sign-up bonus than a similar card with a fee. Credit card issuers use this payment to offset the cost of sign up benefits and other perks. If a card issuer does not charge fees, they take in less money to pay for sign-up bonuses.

2. No-Fee Card’s Bonuses Are Not As Rewarding As Their Annual Fee Card’s Counterparts

A credit card issuer may offer a no-fee version of a credit card with an annual fee. In this case, the customers with the annual fee card will have better benefits.

For example:

  1. American Express offers the Blue Cash Everyday Card with no annual fee and the Blue Cash Preferred Card for $95.
  2. With the Preferred card, you earn 6% cashback at supermarkets and on select streaming services, 3% at gas stations and on transit, and 1% on other purchases.
  3. Using the Everyday card, you earn 3% cashback at supermarkets, 2% at gas stations and select stores, and 1% on other purchases.

No-fee credit cards tend to have a smaller number of extras offered per card. A card with an annual fee may offer a sign-up bonus, points on purchases, and premium travel incentives. This is in addition to basic perks.

In comparison, a no-fee card may offer a sign-up bonus and basic benefits only.

3. There May Not Be a Version of the Card You Want Without a Fee

Sometimes you see a card with amazing benefits. You may not be able to find a comparable card with no annual fee. In that case, you will have to get the card with the annual charge.

We recommend calling the credit card company to find out if they can waive it. You may have to spend a minimum amount of money to do so, and it will be temporary.

You’ll have to remember to request it every year.

Credit cards with No Annual Fee

Type Rewards
Credit Card Name
Annual Fee
Purchase APR
Key Benefits
Type Rewards:

Cash Back

Annual Fee:

0

Purchase APR:

17.74% to 24.49%

Key Benefits: Fees Benefits: 2
Type Rewards
Credit Card Name
Annual Fee
Purchase APR
Key Benefits
Type Rewards:

Cash Back

Annual Fee:

0

Purchase APR:

14.49% to 26.24%

Key Benefits: Fees Benefits: 2
Type Rewards
Credit Card Name
Annual Fee
Purchase APR
Key Benefits
Type Rewards:

Rewards

Annual Fee:

0

Purchase APR:

13.99% to 24.99%

Key Benefits: Fees Benefits: 2

Evaluate the Pros and Cons and Make a Wise Choice

No annual fee credit cards save you money by not charging you for benefits you can get for free.  The rewards and bonuses for which you would be eligible will be less than if you paid a fee.

Sometimes, it makes sense to choose a card with an annual fee, and sometimes it doesn’t.

Review the pros and cons we have listed above and choose a no-fee card wisely.

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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