What Is a Credit Card Annual Fee?

The fee is typically charged in full when you open your account and then once a year in your anniversary month, though a few cards will divide the fee into installments and collect it monthly.¹ The fee generally ranges from fairly small, like $49² to $695 or more with cards on the higher end of the spectrum usually offering the most benefits. But there are also many no annual fee credit cards.

Regardless of the amount, some people are reluctant to pay any annual fee. But some experts advise against choosing a card based solely on whether you’ll pay an annual fee. Depending on how you use it, they say, a card with an annual fee – even a high one – may make better financial sense than a no annual fee credit card.³

Here are some common situations in which paying an annual fee may make sense:

In some cases, accepting an annual fee may be your only way to get a credit card. For example, suppose you have poor credit. Yes, there are some no annual fee credit cards designed for people in this situation. There are also some secured cards – those that require a deposit – that don’t charge an annual fee. If your application is not approved for those options, you may have to choose between the annual fee or doing without a card.

In most of the other situations listed above, you can make the best decision by getting out the calculator and doing some math. For example, let’s consider two cash back rewards cards offered by the same company. Here’s a rundown of Card 1:

Now here’s Card 2:

When you work out the math, you discover that even after paying the annual fee you’ll come out ahead if you usually spend at least $61 a week on groceries. If you don’t, the no annual fee credit card may be the better choice for you.

You might want to run the numbers on travel credit cards, too. At one end of the spectrum are cards branded for airlines or hotel chains – these cards typically often charge annual fees of $150 or more. Although the rewards you earn generally are limited to the partner brand, the annual fee may still be a good deal. Plus, some cards may waive the annual fee for the first year.

Toward the other end of the spectrum are more elite travel credit cards with up to $695 annual fee or more with rich benefits like airline, hotel, rideshare credits, airport lounge access, and preferred member status at branded hotels.

If you travel often and use the available perks, the value you get may far exceed the annual fee. A final point on the math: Don’t forget to consider interest charges.