Paying an Annual Fee for a Credit Card

Like many other finer things, credit cards do not always come for free. While it's true that paying an annual fee is an annoyance, there are times when the benefits you get are well worth the price. There are situations when it might be well worth forking out a charge in return for an annual fee.

The Consumer Financial Protection Bureau reports that in 2020, the average annual fee for a credit card used for all sorts of purchases was about $94. The annual fee might be more or lower depending on whatever credit card you use.

You Need To Build Credit

There are a variety of reasons why someone could have low credit, but there is only one solid justification for someone who falls into that category to pick a card that has an annual fee: it's the best alternative available to them.

A credit card with an annual fee is your most advantageous choice. Even if there are a few credit cards available for those with thin or damaged credit files that do not charge an annual fee, it is possible that you will not qualify for one of these cards because of your credit history or lack thereof. The following are some circumstances in which purchasing this kind of card can make sense financially.

You do not have a checking or savings account: A minimum starting deposit of $200 must be approved for the OpenSky® Secured Visa® Credit Card, and there is an annual fee of $35. Because this card does not need a bank account or a credit check, it is one of the finest choices for those who, based on their profiles, may not otherwise be eligible for other types of cards. Certain secured credit cards don't charge yearly fees, but most of them will check your credit, and the vast majority won't accept you if you don't have a bank account.

Your credit is perfect in every way: A rewards card that offers cash back rewards at a rate of 1.5% is available from Capital One under the name QuicksilverOne Cash Rewards Credit Card. It is also accessible to those with credit scores considered to be in the average range, making it a viable choice for individuals who may not otherwise be eligible for a rewards card. There is a yearly cost of $39 associated with using it. If you charge more than $2,600 on the card each year, you can offset the annual fee cost.

You Want Cash-Back Rewards

If you spend a significant amount in some categories, it may make financial sense to pay the annual fee with a credit card if the cash back you would get will be more than the cost of that charge. "It might make sense to pay a card's yearly charge when the cash you'll receive back will surpass the cost of that fee," is one of the circumstances in which this could be the more profitable choice.

A significant portion of your monthly budget goes on food: The Blue Cash Everyday® Card from American Express offers the same perks without the annual fee, so why would you pay for the more luxurious Blue Cash Preferred® Card? After the first year, American Express's Blue Cash Preferred® Card's annual fee is $95. The Blue Cash Preferred® Card from American Express offers a 6% cash back rate on purchases made in U.S. supermarkets (up to $6,000 in yearly expenditures; beyond that, the cashback rate reduces to 1%).

Assumptions excluded (see rates and fees). Alternatively, the American Express Blue Cash Everyday® Card only gives you 1% back on anything once you spend $6,000 a year, including gas stations and restaurants. Assumptions excluded (see rates and fees). The Blue Cash Preferred® Card from American Express is worthwhile despite the annual fee if you spend at least $61 weekly on groceries.

You are a large spender looking for a fixed-rate cash-back card: Users of premium credit cards may benefit more from the Alliant Cashback Visa® Signature Credit Card than other cards with no annual fee that provides comparable perks. There is a yearly charge of $0 associated with the card. However, it receives a 2.5% cash back bonus on qualified purchases made each billing cycle, up to a maximum of $10,000. If you spend more than $9,900 per year after the first year, you will be better off with a flat-rate 1.5% credit card that does not have an annual fee. If you spend more than $19,800 each year, you will benefit more from a card that charges you 2% but does not charge an annual fee.