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Do all credit cards have annual fees?

Rounding it up

  • As far as credit cards go, the options seem endless. Some have annual fees, others don’t.

  • On top of that, 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 an awesome tool to reap various benefits and build your credit.

6 min read

Yekaterina Galanova
#credit card#fees#banking#cash back

There are many choices as far as credit cards go. These choices can be very exciting; so exciting that they can make you feel like a kid in a candy store. But it’s important to remember that the type of credit card you choose is much more important than the candy you choose at the store.

Though a wrong decision won’t cause you cavities, you could end up with something just as bad, if not worse. Any decision you make when it comes to being a financial consumer can seriously impact your long-term financial health — sometimes for the better, and sometimes, for the worse.

What’s in a card?

The cards offered by financial institutions can be broken down into two main types: the debit card and the credit card. The main difference between these two options is that, with a debit card, the money spent using the card comes out of a chequing or savings account. On the other hand, the money spent with a credit card involves a ‘credit’ or set dollar value of debt allowed by the financial institution issuing you the card. This debt must be repaid within a certain time period. The stipulations of each credit card, such as their fees, interest rates, and rewards or benefits, also depend on the financial institution where the card is opened.

If you have a debit card, you may be wondering: What’s the purpose of having a credit card? The main benefit of having a credit card is convenience; a credit card acts as a short-term loan for the borrower.

How do credit cards work?

Let’s say you’ve applied for the credit card. Then, the financial institution issuing the card will apply something known as the credit line or credit limit. That is the maximum amount of money available to you to spend on goods or services. 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 derive a financial benefit from using the card, by way of building credit.

A credit card can also be used as a means to obtain physical cash in the form of a loan, known as a cash advance. This is a very expensive way to borrow money, as it may come with an interest rate of up to 22%. Consequently, it should be used only as a last resort because there is no interest-free grace period when a credit card is used in this way.

You can also use credit cards for credit card cheques. These cheques are used much in the same way as your conventional chequing account cheques are, but of course, with additional interest according to the terms and conditions set out by the financial institution. You can also use your credit card for a balance transfer as a way to pay off the balance of another credit card.

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/benefits, and fees. It is the duty of any financially regulated financial institution (FRFI) to disclose the terms of the credit card, including any fees or interest.

It is important to remember that a credit card is not ‘free money,’ but rather a type of loan you need to pay back. So you should not borrow more money than you can afford to pay back in a timely manner to avoid paying interest. If you misuse your credit card, you may end up paying extra interest, accrue debt or even damage your credit score.

1. Credit cards with an annual fee

A credit card with an annual fee is just as the name indicates: a credit card that requires an annual fee, which you typically also incur upon sign up. Though the annual fee may be off-putting to some, those types of credit cards offer advantages that cards without annual fees may not.

Though you should always double-check the specific interest rates of the credit card you are considering, it’s generally true that credit cards with an annual fee offer 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.

Many cards with annual fees offer more than just a lower interest to attract customers. They also offer other perks in the form of travel rewards, rental car insurance, cash back rewards, or even grocery rewards. Whether these rewards seem appealing depends on your lifestyle. Let’s say you’re a real estate professional who travels constantly. Then it’d pay off to sign up for a credit card with an annual fee that includes points for travel. 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 Premium, anyone?).

2. Credit cards without annual fees

A credit card without an annual fee is one that will not charge you for signing up or a yearly fee to keep it active. These types of credit cards generally 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 do not offer any type of incentives to continue using them. In other words, typically there are no cash back rewards, travel or rental car perks, or grocery discounts just for using the card. But not all no-fee cards are created equally. For example, you can earn a minimum of 0.5% cash back on every purchase with KOHO’s free reloadable prepaid Visa card.

These cards are an attractive option for someone who simply wants a card without an annual fee. Some individuals 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.

Let’s recap

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.

Most importantly, remember that even though a credit card can provide a line of credit, it's not giving you ‘free money.’ Instead, it offers a loan that needs to be paid back; it’s a loan with costs, even if it isn’t as blatant as an annual fee.

Each credit card issuer markets their credit card to emphasize the super sweet aspects of signing up, but all that metaphorical sugar can come with consequences. This is why knowing the terms and conditions of your chosen credit card is imperative to preserve your financial health and prevent hardship down the line. 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 obtain larger loans for those big purchases, like a car or your first home.

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.

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