What Is a Credit Card Annual Fee? Is It Worth It?

While shopping for a new credit card, you’ve probably noticed that some cards have annual fees and others don’t. Narrowing down whether or not you’re willing to pay an annual fee is a huge step in choosing the right credit card for you.

To make this decision, learn more about what an annual fee is, when it’s charged, and whether it’s worth the cost.

What is an annual fee on a credit card?

An annual fee on a credit card is the yearly cost of keeping a credit card account open. Think of it as your credit card’s membership fee.

Annual fees are flat fees that generally range between $39–$995. The median annual fee charge is around $95, according to a study by Elite Personal Finance. 1 2

Annual fees vary widely between cards, and some are dependent on the borrower. For example, credit cards for bad credit may list an annual fee range of $75–$95 and require applicants with lower credit scores to pay a fee on the higher end of that range ($95).

Do all credit cards have an annual fee?

Not only do annual fees vary widely between cards, but there are also credit cards without annual fees entirely.

Credit card issuers charge annual fees to offset their costs, which either come from lending to risky borrowers or offering generous rewards and benefits. Consequently, here are the three main scenarios you’ll see credit cards come with annual fees:

• They’re available to risky borrowers: Credit cards for no credit or bad credit, especially those aimed at people who are rebuilding damaged credit, often come with annual fees as a way of mitigating the risk of cardholders not paying off their balances.
• They offer rewards: Many rewards cards—like those that offer cash back, points, or air miles—charge annual fees to offset the costs of giving money back to borrowers.
• They have ample benefits: Credit cards with enticing benefits packages (like built-in insurance, travel protections, or access to airport lounges) also charge annual fees. Oftentimes, these types of cards fit into one of the categories above as well. For example, many credit cards for rebuilding credit offer credit-monitoring services as part of a benefits package.

When do you pay the annual fee on a credit card?

Credit card annual fees are usually charged within the first month of you opening your card, then every 12 months after that. Sometimes, your annual fee will be taken out of your balance immediately upon opening a card. This is often the case with secured credit cards.

Alternatively, some credit card issuers divide the annual fee by 12 and charge it to your statement on a monthly basis.

If it’s not clear when your annual fee will be charged, call your card issuer and clarify this so you don’t accidentally miss a credit card payment for a fee you didn’t know was on your bill that month.

How do you pay a credit card annual fee?

Your credit card annual fee will be included in your statement as if it was any other charge.

Just pay your credit card balance, including your annual fee, on time and in full to avoid interest charges or late fees.

Are credit cards with annual fees worth it?

Credit cards with annual fees can definitely be worth it, depending on your spending habits and credit card needs. You should consider opening a credit card with an annual fee if:

• The rewards you earn outweigh the fee: If you’re looking at a rewards credit card that has an annual fee, calculate whether you’d earn enough in cash back, credit card points, or miles to offset the cost of the fee. Be careful to make this calculation based on your current spending habits. If earning rewards requires you to adjust how and where you spend your money (e.g., by spending more than you normally would), you might not end up saving much after all and should consider another card.
• The benefits are worth it: Benefits are rarely a standalone feature of credit cards. Instead, they’re usually perks added alongside a card’s main features, such as rewards or credit-building features. If the benefits eliminate one of your regular expenses or otherwise improve your life, an annual fee may be worth it. For example, cards that offer travel lounges, flight insurance, and lost baggage protection may be well worth the annual fee to a frequent traveler.
• You’re building or rebuilding credit: Unfortunately, cards for poor-credit or no-credit borrowers don’t usually come with rewards, but still charge annual fees. If you’re trying to build credit, the annual fee may be worth it, as people with limited credit histories or bad credit scores aren’t likely to qualify for many cards. Look for cards with credit-building benefits (e.g., credit reporting, free credit scores, credit tools) to make the annual fee worth it.

If you’re interested in learning more, take a look at some of the best options for credit cards with no annual fee.

When shouldn’t you get a credit card with an annual fee?

You should not get a card with an annual fee if you’re unable to afford it. If you’re unsure whether or not paying an annual fee is worth it, shop around to weigh what you can get with a no-fee credit card versus one with an annual fee.

How to avoid a credit card’s annual fee

If paying an annual fee isn’t worth it to you, there are several ways to avoid an annual fee on a credit card:

1. Compare cards before opening one: Before committing to a card with an annual fee, shop around to see if one without a fee still meets your borrowing needs. If there’s a particular annual-fee card you have your eye on, figure out what this card offers that appeals to you most. Then look for other cards that offer those features and don’t charge fees.
2. Get a student card: If you’re a student who’s worried your limited credit history won’t qualify you for a fee-free card, look at getting a student credit card. Most student credit cards don’t charge annual fees and many offer benefits for credit building.
3. Ask for a fee waiver: Some credit cards automatically waive the annual fee for the first year of borrowing as an incentive to open an account. If you want a certain card but it doesn’t advertise a fee waiver, call the issuer and ask if they’re willing to waive your first year’s annual fee. You may be asked to meet certain requirements, like spending $500 in the first three months of card opening. While this is a harmless strategy to eliminate your first annual fee, you’ll still be charged a fee in following years.
4. Improve your credit score: As mentioned, cards for poor or limited credit often charge annual fees to offset the risk of lending to less creditworthy borrowers. However, once you improve your credit score, you can qualify for a much wider range of cards, including those without annual fees. As your credit score increases, you’ll notice more and more favorable borrowing options available to you.