Home > Credit Cards > An Easy Way to Compare Annual Fee & No Annual Fee Credit Cards

Comments 0 Comments

[UPDATE: Some offers mentioned below have expired and/or are no longer available on our site. You can view the current offers from our partners in our credit card marketplace. DISCLOSURE: Cards from our partners are mentioned below.]

They say you get what you pay for, but does that hold true for credit cards? Some people refuse to pay an annual fee just to have a credit card while others pay annual fees for a credit card that they feel is worth it.

So which type of card is better?

When deciding whether to pay an annual fee, you need to consider how you use your credit card and how much you spend. Those who use credit cards to earn rewards and spend a large amount each month are likely to benefit from the higher rates of return offered by cards with annual fees. (Those who regularly take advantage of the travel benefits offered by premium reward cards could find their annual fees worthwhile as well.)

On the other hand, those who only put a modest amount on their credit cards and have little need for travel benefits or other potential perks may not see the downside to choosing a card with no annual fee.

When to Pay an Annual Fee

Imagine a credit card user named Susan who’s a frequent traveler. She travels at least once a month and spends about $3,000 a month on her credit cards. While there are some basic travel reward cards offered with no annual fee, someone like Susan who travels and spends often could benefit from a card with an annual fee.

Several airline credit cards charge $95 annually, but offer valuable benefits such as a free checked bag, priority boarding and discounts on in-flight food and drinks. Since most airlines now charge $25 per checked bag each way, Susan could make up the annual fee if she has to check a bag for two round trips.

Even if Susan doesn’t travel often, she spends enough each month to justify paying an annual fee for a premium cash back credit card. The no-fee American Express Blue Cash Everyday, for instance, offers 3% cash back at supermarkets (on up to $6,000 each year), 2% cash back at gas stations and various department stores and 1% cash back on everything else.

By paying the $95 annual fee for the American Express Blue Cash Preferred version, she could earn 6% cash back at U.S. supermarkets (on up to $6,000 each year), 3% cash back at U.S. gas stations and 1% cash back on everything else. If she spends $6,000 a year at grocery stores, then she will receive an additional $180 in rewards, easily outweighing the cost of the annual fee.

When Not to Pay an Annual Fee 

Now let’s consider a recent college graduate named Seth who’s on a tight budget and doesn’t travel much since he’s still paying off student loans. He only spends about $500 a month, and since he occasionally carries a balance, he’s looking for a card with super-low interest rates.

Thankfully, there are decent credit cards out there without an annual fee. If Seth wants to earn cash back rewards, it wouldn’t be worth it to use a card with an annual fee to earn a higher rate of rewards, due to how little he uses his card.

So here’s the bottom line: By taking a closer look at how you use your credit cards and how much you spend on them each month, you can decide whether a card with an annual fee is right for you.

Of course, before you apply for any card, be sure you know where your credit stands. Good credit scores are generally required to qualify for the better plastic out there. Plus, the last thing you want is to be denied for a card and see your score suffer as a result of the hard inquiry. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

If your credit is on the less-than-stellar side, you may be able to improve your score by paying down debt, disputing any errors you find on your credit report and not applying for new lines of credit until your score has bounced back.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

At publishing time, the Amex Blue Cash Everyday and Blue Cash Preferred cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for either one of these cards. However, this relationship does not result in any preferential editorial treatment.

Image: praetorianphoto

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team