Pros and Cons of No Annual Fee Credit Cards
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:
- American Express offers the Blue Cash Everyday Card with no annual fee and the Blue Cash Preferred Card for $95.
- 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.
- 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
Cash Back
0
17.74% to 24.49%
Cash Back
0
14.49% to 26.24%
Rewards
0
13.99% to 24.99%
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.
