Simply Explain it to Me: Credit Card Annual Fees

Why do credit cards have annual fees? If you’ve ever considered this question, you won’t want to miss this article!

You have probably heard of credit cards that come with annual fees. You may also be aware that there are plenty of credit card offers that are entirely free. You might think, at first, that paying a yearly fee is crazy but that's not necessarily the case. There are reasons why you may want (or even need) to be paying an annual fee. This article aims to demystify the annual fee and help you decide whether it could be the best option for you.

What is an annual fee?

An annual fee is a yearly charge by banks for you to use their credit card. The annual fee on a credit card is like the price of admission for attending an event. The fee gives you access to rewards, perks, and benefits that come with the card. You do not need to pay an annual fee to get a rewards credit card. However, cards that require an annual fee often come with the best rewards. For example, instead of earning 3% cash back on dining out, you could receive 6% and additional perks. These extra perks could include dining and airline credits among other benefits.

How much are annual fees?

The amount of the fee depends on the issuer, but it can range from $25 to $1,000 or even more. Usually, the higher the fee, the better the benefits. If applicable, you can find the annual fee under the following section(s):

  • Rates and Fees
  • Pricing and Terms

The annual fee could be a one-time, recurring charge assessed on a specific month each year. Alternatively, the annual fee could be broken up and charged monthly. However, the fee is usually charged once a year. It is essential to read the terms and conditions so that you know what to expect.

What credit cards have annual fees?

Credit card issuers charge annual fees on specific types of cards. Credit cards that commonly have annual fees include:

  • Rewards credit cards
  • Travel credit cards
  • Secured credit cards

We have touched upon credit cards with rewards and travel incentives, but secured cards often come with annual fees, as well. Secured credit cards are for individuals with a poor or non-existent credit history. These cards often come with an annual fee and an initial deposit.

Annual fees can be beneficial depending on your lifestyle and spending habits. Free credit cards are an excellent option for most people, but you may benefit from a credit card that requires an annual fee. However, you must be clear on why the annual fee is charged, how much it will cost, and if it will benefit you. This understanding will enable you to make the correct decision on whether you should be paying any particular annual fee.

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