There are different fees associated with credit cards. Aside from the APR, the annual fee is usually the most expensive cost of all. Why do other credit card issuers charge an annual fee? Should you only go with a no annual fee card? This article will answer these two important questions:
What are Annual Fees?
It is the fee that a credit card holder must pay every year to keep the account active. Hence, it is also called activation fees. Some issuers charge them while others do not. Usually, credit cards with rewards or with promotional offers like zero APR carry the activation fees.
It can range anywhere from $20 to as much as $80 or higher. It is fairly common for credit cards with low interest rates to carry a higher fees every year. On the contrary, credit cards with higher rates may not require yearly fees at all.
Good or Bad?
The answer will depend on the overall value of the credit card. Keep in mind that the it is not the only cost that comes with your credit card. This is why it is very important to weigh all credit card fees before making a decision.
For example, let's say that one credit card carries a $20 fee every year while the other carries $50 yearly. Which one of these cards should you choose? Before immediately choosing the first one, consider the other costs. Let's take a closer look.
Upon checking the fine print, you find out that the first card with a lower fee actually comes with an interest rate of 19%. Meanwhile the second card with a $50 annual fee comes with just 14% interest rate. So, which one is for you?
If you can be sure that you can completely avoid the interest rate by paying your monthly balances in full the whole year, then you may go with the second one. However, paying the additional $30 may be worth it if you can save 6% from the monthly interest rate cost.
Clearly, you cannot pick a credit card based on the yearly fee alone. Nor can you make a wise choice based on the interest rate only. Aside from weighing the costs, you need to consider the actual conditions associated with it as well as the rules.
Spend time examining the fine print. Remember that finding a no annual fee credit card is not a guarantee that you have found the best deal. Furthermore, you want to make sure that the "Great Offer" is a lasting one. Some issuers may offer to lift the annual fee on the first year but may come back at you with an expensive APR or higher surcharges.
If you do your research well, you should be able to find good credit cards in the market with fairly low interest rates and with reasonable or even no fees every year too. Use credit card review sites to compare your options and to match up the fees associated with each card.
Copyright (c) 2010 Suzy Vanstrusen
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