Why You’ll Like a No Annual Fee Credit Card

You can save a lot of money over the long term with a no annual fee credit card, and they are generally very popular. But before you apply, there are a few things that you will need to be aware of.

Q: What is a no annual fee credit card? A: No annual fee credit cards are a particular type of credit card without any charges for annual account maintenance. There are obvious money-saving benefits with credit cards that charge zero annual fees, but there is generally a tradeoff to be made in that they tend to lack features such as rewards programs. These types of cards generally have average purchase rates and may also offer a balance transfer facility.

Q: What types of no annual fee cards are there? A: Broadly speaking, there are different types of credit cards that don’t charge an annual fee. Have a look around to see what you can get.

• No annual fee for life offers – As you’d expect, this is the main type of credit card without an annual fee. These cards charge no annual fee for life, which means you don’t have to worry about switching to a different bank after a year so you can avoid paying the yearly fee. However, it is advisable that you read the small print before applying to check that the bank won’t charge any annual fees in the future.

• No annual fee for the first year offers – Some banks are now offering cards that charge $0 fee in the first year to attract new customers. You would be wise to compare what the annual fee is in after the first year as it may rise to be above the average fee. Before applying for a credit card offering no annual for the first year only, carefully consider whether or not you would be comfortable paying the full annual fee after the offer expires in a year, particularly focusing on whether the benefits the card offers, e.g. lower interest rates, outweigh the cost of the annual fee.

• No annual fee promotional discount offers – There are also credit cards with a discounted annual fee, however, the discount typically only applies to the first year before reverting to the full annual account charge for subsequent years. Just as is the case with offers of no annual fees for the first year, you should compare the cost of the full annual fee you’ll be charged after the first year and decide whether the card’s features are sufficient to justify keeping your account open. It may be that you’re only interested in the card because the first year is cheap.

If you are unsure about the annual fee, double check before submitting your application.

Q: Do no annual fee cards have rewards programs? A: Generally the attraction of a no annual fee credit card is the saving of not having to pay for account maintenance, so rewards programs are not as common. However, there are some no annual fee credit cards with reward programs available. If you have managed your finances so that you pay off your balance in full every month while spending with your card on a regular basis, then you stand to benefit most from this type of card. However, if you use your credit card regularly and don’t pay off the balance in full every month, the rewards earned can be negated in value by the interest you’ll have to pay.

Q: Can I transfer an outstanding balance? A: The majority of the best credit cards without annual fees will have a balance transfer facility available. It should be noted that although you may save money by not having to pay an annual fee, it may actually work out cheaper for you to get a card that charges a nominal annual fee, but has a lower balance transfer rate so that your monthly repayments are significantly reduced.

Q: Who are these cards for? A: Broadly speaking, if you are the sort of person who only intends on using their credit card to fund unexpected emergencies such as car breakdowns, occasional online purchases or to use when travelling abroad, then a card that doesn’t charge any account maintenance fees can save you a nice chunk of money. Also if you don’t intend on using your card regularly then features like rewards programs may simply be a waste of money as you have to spend quite a lot to earn enough for any sizeable return.

Q: How can I maximise the benefit of a no annual fee card? A: To get the most out of it, make sure that you pay off your balance in full each month. Most no annual fee credit cards (except the occasional card with an offer on purchase rates) will charge the standard rate of interest of around 19% p.a. on your purchases. So if you want to make the biggest savings, live within your means, buy what you can afford and pay the balance off in full each month.

Q: Are annual fees important? A: Yes, they definitely are! When you’re comparing credit cards, the annual fee is one of the most important aspects to look at apart from the interest rates on balance transfers and purchases. If a card’s annual fee is several hundred dollars, then it is definitely important to consider what exactly the card offers to justify the fee. High annual fees are usually charged on rewards cards of various types, so before applying make sure you will actually be earning points that you can redeem for something useful to you. If you are looking for a credit card with standard features and don’t care for rewards or other perks, then a card without an annual fee will be more financially attractive compared to one that charges account maintenance.

Q: What happens if I miss a payment? A: Missing a payment is never a good thing, and it may result in you being charged the annual fee. But worse still, your credit rating may be damaged if you miss one or more monthly payments.