6 min read

Do all credit cards have annual fees?

Rounding it up

  • Some credit cards have annual fees, others don’t.

  • Each credit card comes with different interest rates, benefits/rewards, and fees, so it’s important to educate yourself before choosing a credit card.

  • Whatever credit card you pick, always remember it’s not providing you with “free money.” Rather, it’s a type of loan that you need to pay off in time to avoid supplementary costs.

  • As long as you stay on top of your payments, credit cards are a useful tool to build your credit.

Do all credit cards have annual fees? The short answer is no. Similar to other banking products, credit cards come with a variety of options – some with an annual fee and some without. A question that often comes up is what’s the difference between these two types of credit cards and how do you choose the right one for you? Let’s find out by digging into types of credit cards and some of the pros and cons associated with each of them.

How do credit cards work?

Let’s say you’ve applied for the credit card. After evaluating your financial background, the financial institution issuing the card will apply what is known as the credit line or credit limit. That is the maximum amount of money available to you to spend on things. As long as the money is paid back by the due date, you as the borrower, will not accrue any penalties or interest, and may even benefit from using the card, by building credit.

How to choose the right credit card for you

As mentioned, there are many options as far as credit cards go. We recommend choosing the credit card that best fits your financial needs. In choosing the best card for you, you should consider the interest rate, rewards and benefits, and fees. It’s the duty of any financially regulated financial institution (FRFI) to disclose the terms of the credit card, including any fees or interest.

1. Credit cards with an annual fee

A credit card with an annual fee is just as the name indicates: a card that charges you a fixed amount every year, which you typically have to pay upon signup. Though the annual fee may be off-putting to some, those types of credit cards offer advantages that cards without annual fees may not.

Are credit card fees worth it?

Some annual fee credit cards come with a lower interest rate. The upfront fee you pay for the card in the form of an annual fee may make the card an unappealing option at first. But do the math and you may find out the card could cost less over time because of its lower interest. It goes without saying, however, that regardless of any interest rate, you should always try to pay off your balance on time to avoid accruing interest.

Other annual fee credit cards offer perks in the form of travel rewards, rental car insurance, cash back rewards, or even grocery rewards. Whether get your value-for-money from those perks will depend on your lifestyle. Let’s say your work requires you to travel frequently. In that case, it might make sense to sign up for a credit card with an annual fee that includes points for travel as the rewards you collect would be more than what you pay for the annual fee. Similarly, if you are someone who spends a considerable amount on food, then a card that offers cash back at grocery stores or restaurants may also be an appealing option (KOHO Extra, anyone?).

To sum it up, annual fee credit cards are worth it only if the benefits you get in return outshine the cost that you incur. Try this simple litmus test to see if getting a credit card with an annual fee makes sense for you: ask yourself if you would need to change your lifestyle in order to take advantage of the perks offered by the card. If the answer is yes, you’re probably better off without the card.

2. Credit cards without annual fees

Some cards don’t have an annual fee. These types of credit cards sometimes have a higher interest rate. With some cards, the interest rate can be as high as 20-something percent, and if not paid quickly, this interest compounds and can add a hefty amount of money to your credit card balance.

The no-annual fee cards are not known for their rewards. Oftentimes, these cards don’t offer any type of incentives to continue using them. Typically there are no cash back rewards, travel or rental car perks, or grocery discounts just for using the card, or even if they do offer rewards, they are lesser than what you would get back with an annual fee credit card. But not all no-fee cards are the same. For example, you can earn 1% cash back on groceries and transportation with KOHO's Easy plan.

These cards are an attractive option for someone who simply wants a card to use without the hassle of paying extra to just use the card. Some people don’t want to spend time weighing the pros and cons of the perks offered by various credit cards – they simply want to have a credit card on hand. No-annual-fee credit cards are best for beginners because they don’t require considerations aside from the interest rates. However, due to the higher annual interest rates that come with these cards, they are best for individuals who pay off their balance quickly and can avoid accruing additional interest.

3. Prepaid Mastercard

There’s a third option that exists if you want to earn rewards without paying the annual fee. KOHO’s prepaid Mastercard offers the best of both worlds because it’s zero annual fee, but you still earn cash back on groceries and transportation. Plus, KOHO’s prepaid Mastercard only uses the money you already have in your chequing account so you earn rewards without worrying about racking up actual debt. It’s an attractive low-risk, no-investment option that offers the benefits of credit cards without damaging your credit score.

Final thoughts on if all credit cards have annual fees

So, if you’ve ever wondered if all cards come with fees, the answer is a resounding “no.” Not all credit cards have annual fees. However, if a card has no annual fee, it may still cost you in other ways (AKA interest!). Before deciding between a card with an annual fee or one without, it is best to really think about your unique financial needs and situation.

Each credit card issuer markets their credit card to emphasize the appealing aspects of signing up, but all the perks may not bring the most return-on-investment for you. This is why knowing the terms and conditions of your chosen credit card, and making sure the perks you get with them align with your lifestyle, is imperative to preserve your financial health. If used correctly, a credit card, whether it is one with an annual fee or one without, can offer various benefits, including building your credit to get larger loans for those big purchases, like a car or your first home.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Yekaterina Galanova

Yekaterina Galanova enjoys writing about personal finance, as well as aesthetic topics, though she is open to discovering new niches. She enjoys reading, traveling and beautiful landscapes.