A credit card annual fee is an amount of money that a credit card company or bank charges holders as to maintain profitability. These fees, as suggested by the name, are charged once a year, adding to the cost of owning a credit card. Though not all credit cards are charged an annual fee, certain types such as secured credit cards, reward credit cards, and premium credit cards more often come with this fee. Bear in mind that the fee amount can be charged on a fixed basis regardless of other factors such as the value of purchases made during the year.
Why Do Banks Charge Annual Fees?
Crediting institutions exist to gain profit by doing business with the borrowers. Therefore, if the customers do not pay interest, late payments, or other fees, the company does not earn its share of profit. When clients do not use their credit cards or simply use them on rare occasions, the company issuing the card will lose a portion of its profits as well. For the entity to profit from such clients, it imposes an annual fee that is charged regardless of the value of purchases made during the year. Keep in mind that not all creditors follow the same strategy. There are certain credit card issuers that don’t charge annual fee if certain criteria are met.
Avoiding Annual Fees
Annual fees are simply annoying for credit card holders and many seek ways to avoid extra payments. One way to go round fees is to apply for a credit card that charges a zero annual fee. The reason why some issuers offer this financial product is the tight competition on the credit card market. While 20 percent of the companies charge annual fees, 80 percent of them advertise no annual fees to attract more customers. Beware: this condition may change anytime as credit cards become less profitable and the issuing institutions may come up with policies ensuring profitability. For this reason, customers are not protected against the future payment of annual fees. Always read the fine print that comes with the card registration as to find out the hidden policies that may apply.
In Canada, customers can choose from a large variety of credit cards with zero annual fees. The Cash Back Gold MasterCard®, for instance, goes with APR of 19.8 percent, no annual fee, and no limit on the amount of cash customers can earn. Clients earn up to 1 percent cash back on making purchases. Aspire™ Gold MasterCard® gives clients the opportunity to earn reward miles, and comes with APR of 19.8 and no annual fee.
Another way to avoid paying an annual fee is to get the company waive it. Most often than not, the credit card issuer will be willing to waive the fee if certain conditions are met. Usually, the card holder has to charge a certain amount on the card during the entire year in order to get it done.
If the creditor sends a notice of annual fee increase, the card holder has the right to reject it by opting out. However, it may not be a good idea as your credit score can be adversely affected. The best option is to look for ways to avoid paying the fee without compromising your credit score. As a card holder, the smart way to succeed is to get well-informed.