What is a Credit Card Annual Fee?

A credit card company may charge an annual fee to use certain credit cards—essentially, the cost of card membership benefits and rewards. Paying a fee to open and keep a credit card might not appeal to everyone. Some people pay hundreds of dollars for a credit card with impressive rewards and perks. Others prefer to keep things simple with rewards credit cards that don’t include an annual fee but still allow them to earn something extra for their purchases.

Let’s take a closer look at what an annual fee may get you compared to a credit card with no annual fee.

What is a credit card annual fee?

An annual credit card fee is a fee your credit card issuer may charge when you open a new credit card and every year after that, usually on the anniversary of your account opening. This yearly fee is the cost of accessing certain card benefits or services. For instance, cards with an annual fee are often rewards cards or specialized cards that help you build a credit history, called secured credit cards.

While you’ll usually pay an annual fee every year, exceptions can apply: some credit card companies may waive the fee for the first year you have the card as a bonus for opening a new account. But generally, you can expect to pay anywhere from $50 to over $500 per year for a credit card annual fee.

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Is a credit card annual fee worth it?

Paying an annual fee for a credit card may be beneficial if the membership rewards and benefits you receive are worth more than the yearly cost. When considering annual fee credit cards, confirm the percentage of rewards you’ll receive for eligible purchases and what types of purchases may offer bonus rewards.

You may also want to weigh the additional perks. For example, paying an annual fee for an airline card that offers free checked bags and early boarding might make sense if you’re a frequent flyer. But if you don’t think you’ll regularly use these benefits, a cash back card without an annual fee might be more appealing.

Do you have to pay an annual fee to earn rewards or build credit?

You don’t have to pay an annual fee to get a rewards credit card.

But rewards credit cards without an annual fee might have lower rewards rates and fewer cardmember benefits. Still, rewards cards with no annual fee offer many ways to earn and redeem rewards.

If you’re trying to build a good credit history, you may need to apply for a secured credit card (a card that requires a deposit equal to your credit limit). Many—but not all—secured cards require a yearly fee to help cover the risk of borrowers with poor or no credit defaulting on their credit card debt.

Pros and cons of a credit card with an annual fee

Now that we’ve explored the basics of a credit card annual fee, it may help to compare the pros and cons side by side.

Pros

• Higher rewards on purchases
  Credit cards with an annual fee often offer more rewards for everyday purchases or specific categories like travel than cards without an annual fee.
• Additional benefits
  In addition to rewards, a credit card annual fee may get you valuable perks like free travel insurance and purchase protection.
• Build a credit history
  Many secured credit cards require an annual fee, but if you use your card responsibly (making on-time payments and keeping your balances low), a secured credit card can help you build a good credit history.

Cons

• Costly
  Having a card with an annual fee means paying a yearly premium for the benefits that come with it, so it’s important to consider whether the rewards are worth year-to-year expenses.
• Unused benefits
  You may not use all of the benefits of your credit card, but you’ll still pay for them each year.
• Risk of overspending
  It may be tempting to charge more than you’re comfortable spending to earn enough rewards to offset your annual fee. This could lead to credit card debt and interest charges if you can’t pay your statement balance in full each month.

Can an annual fee change?

While you’ll know a card’s annual fee when you first apply, your credit card company may increase your fee over time. The card’s benefits may also change, and you’ll want to consider whether it’s worth paying the new fee to keep the card open.

To avoid closing your credit card account to avoid paying the higher annual fee, you may be able to switch to a different card from the same issuer that doesn’t have a yearly fee.

Overall, a credit card with an annual fee could be worth it if you value the additional rewards and benefits that come along with it. If you’re considering a card with an annual fee, it’s essential to research and understand the potential pros and cons.