What is a no annual fee credit card?
A no annual fee credit card is designed to provide credit access without the ongoing cost of an annual fee. These cards are popular with first time card users, students, pensioners, or individuals looking to minimise the cost of credit while still having the flexibility that a credit card offers.
Types of no annual fee credit card offers
In Australia, there are two types of no annual fee credit cards.
1. Ongoing $0 annual fee offers
These cards have no annual fee for the life of the card. This is the most straightforward option, as you don’t need to worry about the fee after an introductory offer ends or meeting specific criteria to keep the card fee-free. Popular for those looking for access to credit they can use when necessary without having to pay for the privilege.
2. Introductory no annual fee credit cards
Some cards waive the annual fee for an introductory period, typically for the first 12 months, before reverting to the standard annual fee. These introductory offers can be appealing, especially if paired with a 0% balance transfer. Be sure to check what the ongoing annual fee is once the introductory period ends.
Expert opinion on the mistake people make most often with no annual fee cards
David Boyd, co-founder of Credit Card Compare, explained further on what he thinks the biggest mistake Australians make when they get a no annual fee credit card.
Some credit cards have no annual fee for the first year, but will charge an annual fee for subsequent years. Make sure you are clear about what it is you are signing up for so you don't get a surprising charge in a year's time.
How do no annual fee credit cards work?
Credit cards with an annual fee usually come with additional perks such as earning points, airport lounge access, insurance, etc. The higher the fee, the better the package of benefits is.
It works the other way too. Credit cards with no annual fee have few, if any additional perks and benefits other than the line of credit itself.
Here’s how no annual fee credit cards operate.
- Similar to other credit cards. These cards work just like any credit card in that you can make purchases and borrow against your credit limit. The key difference is that there is no fee just for having the card.
- Fewer features and perks. These cards usually come with fewer features compared to premium cards. You’re less likely to earn rewards points or get other perks like frequent flyer points and benefits on cards with no annual fee.
- Lower interest rates. Interest rates on no annual fee cards vary significantly between issuers, but are more likely to be on the lower end since they target users whose primary objective is to save money. However, some issuers offset the lack of an annual fee with higher rates.
If you’re specifically looking for a card that offers rewards like Velocity Points, Qantas Points or business credit cards without annual fees, there are a few options available although they are rare. There is a selection of frequent flyer cards with no annual fee available.
How to choose a no annual fee credit card
What to consider before applying for a no annual fee credit card?
Consider the following factors before signing up.
- Interest rates. Look for a card with competitive interest rates to save on finance charges. If the card has an introductory offer, check what it reverts to.
- Rewards programs. A few no annual fee cards offer rewards points or cashback. The trade-off is that their earn rate per dollar spent will be lower than a card with an annual fee.
- Additional fees. While the annual fee may be waived, don't forget to check what the other fees are, such as late payment fees or foreign transaction fees.
- Perks and benefits. Most credit cards with no annual fee are fairly limited in terms of any additional benefits outside of a line of credit. It's exceedingly rare for them to have features like travel insurance, purchase protection, and concierge services.
- Credit limit. These cards tend to be relatively no-frills, so above average credit limits are unlikely.
How to maximise the usage of a no annual fee credit card
Need a card with no annual fee for a rainy day and don't think you'll use it much? Here are a few tips to get the most out of it.
- Check your statement regularly. Keep track of your spending and payments to avoid unnecessary fees.
- Always pay on time. Timely payments means you avoid interest charges and can improve your credit score.
- Pay your statement balance in full. This avoids building up debt and keeps your credit utilisation low, which is good for your credit report.
- Maximise rewards. If your card is partnered with a rewards program, be strategic with your spending to maximise your benefits.
Why having a no annual fee credit card can be useful
Andrew Boyd, co-founder of Credit Card Compare, explains one of the lesser appreciated benefits of having an no annual fee credit card.
If you're wondering what the point of having a no annual fee credit card is when you don't really need one, they can come in handy when you least expect it.
You'll know what I mean if you've ever travelled without your wallet. It causes all kinds of issues when checking into various hotels since they generally want to swipe the physical card.
Benefits of no annual fee credit cards
While they usually have a fairly lean package of benefits, there are still benefits to be had with no annual fee credit cards whether you’re looking to save money or need a backup credit option.
- Cost savings. With the average annual fee on Australian credit cards being around $135, a credit card without this fee is one way to save a bit of money. You can still have access to credit without the additional burden of an annual cost, especially if you avoid interest charges by paying off your balance in full each month.
- Financial flexibility. No annual fee cards offer financial flexibility, particularly for those who may not use their credit card frequently. Since there is no cost for simply holding the card, you won’t be penalised if you only use it occasionally, keep it for emergencies, or to use when travelling. This provides a level of freedom, as you won’t feel pressured to spend just to justify holding the card.
- Introductory offers. Some no annual fee credit cards come with attractive introductory offers such as 0% interest rates or bonus rewards.
- A simple, no-frills option. If you just want straightforward access to credit without the complexity of rewards programs or premium perks, no annual fee cards are worth considering.
- Ideal for infrequent use or emergency backup. A no annual fee card means you’re not paying for something you hardly ever use. Even if your card remains inactive for extended periods, you won’t incur any fees just for having it, making it a low-cost solution for occasional spending.
- Build credit history. Using a no annual fee credit card responsibly can help you build or maintain a good credit history. By making timely payments and keeping your balance low, you can demonstrate financial discipline without incurring extra fees.
- Additional features. While no annual fee cards generally offer fewer perks, there are some with rewards or insurance, offering a balance between cost savings and earning potential. The trade-off is that these cards typically have a lower earn rate for rewards compared to their premium alternatives.
