No Annual Fee Credit Cards? Beware

There was a time when no annual fee credit cards were the norm and only those with damaged credit or who wanted lots of extra perks had to pay an annual fee. Those days however are long gone.

Congress tightened up many of the rules for credit card issuers recently and with the new regulations, many fees and other cash cows for the credit card issuers have gone the way of the dodo bird. This means that annual fee credit cards are back in style. While there are still a large number of no annual fee credit cards available, they may not be the best deal available. Here’s what you need to know:

High APR

Many no annual fee credit cards will carry a higher annual percentage rate for purchases. This isn’t a problem for those who always pay off their card balance at the end of the month, however if you happen to carry a balance from month to month (it’s actually a good idea to do so occasionally – it helps your credit score), then you could easily end up spending more than the annual fee in interest payments.

More/Higher Fees

Credit card issuers need to make their money some way. If they aren’t charging you anything to carry their credit card, then they need to come up with another mechanism for earning their money. In many cases, this means that the fees on your credit card may very well be higher than those of other cards.

Fees may include over the limit fees, returned check fees, cash advance fees and pretty much any other kind of fee the banks can think up which is still legal for them to charge you. Remember, banks aren’t in business to provide you with free credit in the form of a no annual fee credit card. They’re in business to make money and as such, if they don’t make money from annual fees, they’ll make it up in other ways.

No Benefits

Another thing you’ll miss with your no annual fee credit card is the benefits that often come with ordinary cards. Very few such cards offer airline miles or cash back for example. Concierge services, also a popular perk with some cards tend to disappear with the no annual fee card as well (don’t forget that the American Express Black Card, the premier concierge credit card carries a whopping $2,500 annual fee).

While this may not be an issue for some people, it’s important to consider all the things that you won’t be getting when you don’t pay an annual fee for your card.

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Exceptions to Every Rule

Now before you start commenting about how you happen to have a no annual fee credit card with all these extra perks and or a low APR, you should know that we’re not saying that no such cards exist. However, they tend to be fewer and further between than they once were.

It should also be noted that even if you do find such a card, you need to compare it carefully to other kinds of cards. Often, the perks are less generous and the APR is still slightly higher, even it seems on the surface to be a pretty good deal.

Bottom Line

Ultimately, you need to judge for yourself whether or not it’s really going to be worth your while to save the money each year but forego the extra benefits and pay higher fees and interest rates for getting one of those no annual fee credit cards. Bottom line, weigh all the factors carefully and then make an informed decision for yourself.

Follow @CreditDonkey or write to Eric Hunt at eric@creditdonkey.com

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