Credit card annual fees are one of those issues that seem to divide consumers into two distinct camps.
On the one side, you have folks who are philosophically opposed to paying a fee of any size for the right to use a credit card. On the other side, there are those who see fees as just a necessary cost for the benefits their credit card offers.
But why do some credit cards charge an annual fee, while others don’t? To understand the annual fee question, we need to take a look at the reasons a credit card company might elect to impose this charge on card users.
Here are some of the reasons and justifications that card issuers point to when challenged on their policy of charging an annual fee:
1. When redit cards offer plenty of perks, bonuses and rewards
Some credit cards come with such extravagant perks that charging an annual fee helps the card issuer recoup a portion of the program’s cost.
Examples of this include premium cards like The Platinum Card® from American Express and Chase Sapphire Reserve℠ cards. These cards charge as much as $550 annually, but offer cardholders rebates, purchase protection and bonuses that can add up to many times that amount.
Want to earn rewards without paying an arm and a leg in annual fees? We have just the cards for you.
2. When credit cards have low APRs
Credit card companies also charge fees in return for offering a lower interest rate on balances carried over each month. For a cardholder with a high balance, the savings of a lower APR may make paying the annual fee a smart choice.
3. When credit cards incentivize minimum yearly charges
Many card issuers will waive the annual fee on their credit cards if the card is used a certain number of times or if a certain dollar amount is charged on the card. This can incentivize a cardholder to use that card more often.
4. When credit cards want to circumvent the Credit CARD Act of 2009
One reason for annual fees may be to circumvent restrictions put in place by the Credit CARD Act of 2009, which prohibits credit card companies from charging multiple fees and penalties, along with restricting their ability to raise interest rates without advance notice.
The result of this rule was the removal of a portion of the revenue those companies earned. To make up for that lost revenue, many of them began charging an annual fee.
5. When cardholders don’t think twice about annual fees
One more reason a credit card company might charge an annual fee is many cardholders are simply used to paying it. Small business owners and independent contractors who rely on their credit cards to operate their businesses may simply consider it another business expense – and a deductible one at that.
So should you pay an annual fee for a credit card or not? Most experts will tell you the decision to pay an annual card fee comes down to a question of how much benefit you get from that particular card.
If the benefits and rewards you actually use outweigh the fee, then it may be worth paying for a card. Or if the lower interest rate you receive saves you more than the cost of the card, it may make sense.
Credit card issuers pay an enormous amount of money simply acquiring reliable credit card customers. If you have a good relationship with your card company, call and ask them to waive the annual fee. There’s a good reason they’ll want to keep your business and will gladly do so.
Let’s face it: For those of us looking to cut back any way we can, annual credit card fees are an extra and maybe unnecessary expense. With more than three-quarters of the cards out there charging no annual fee, you should be able to find one that fits your needs at no extra cost.
Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.