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How to choose between annual fee and no annual fee credit card
Key takeaways
- Annual fee cards typically provide higher rewards but make sense only if the rewards and benefits you'll use exceed the annual fee cost
- Many cards with no annual fees offer rewards and perks, too. They're also good for occasional use, allowing you to keep accounts open long-term with no fee
- Choose based on your spending patterns and financial goals. Calculate whether potential rewards will justify any annual fees
How do you choose between a credit card with annual fees and a card without? The obvious answer might be that the card without annual fees would be less expensive to use than the card with fees.
However, there can be times when it's worth paying an annual fee for a credit card. Let's take a closer look at the differences between annual fee vs. no annual fee credit cards to learn why.
Annual fee cards
Annual fee credit cards work much the same as no annual fee credit cards. You might use them to buy groceries, rent cars, get cash advances, transfer balances, and so on. But annual fee cards, especially ones with high fees, tend to have certain attributes. They may include benefits like:
- Higher reward rates. The rewards program for an annual fee card might pay a higher rate for certain purchases or for purchases in special categories
- Premium perks. These extras may include free tickets or exclusive ticket pre-sales for music or sporting events. Travelers could benefit from access to airline travel lounges, free bag check-ins, and foreign transaction fee waivers. Other perks can be discounts on streaming services, ridesharing costs, and entertainment purchases
- Sign-up bonus. An introductory offer might include additional bonuses for opening a new account. These bonuses can be a substantial reward of points, miles, or cash back for spending over a certain amount within the first few months of having the card. Other bonuses might offer a no-interest rate on purchases or balance transfers for an extended grace period
- Extra protections. Additional benefits sometimes include many helpful coverages. You might find purchase protection in case of trip cancellation and lost luggage reimbursement, auto rental coverage, or cell phone theft and damage insurance
No annual fee cards
Cards without annual fees can also have many positive features. Here are some common ones:
- Intro offers. No fee cards sometimes have introductory offers, such as a bonus for initial spending (for example: spend $1,000 within the first 90 days and earn $200 cash back)
- Good for occasional use. If you're not planning on using a credit card enough to earn bonuses and rewards, a no fee card is often a good, all-around choice. It's a good option to have for occasional purchases
- Easy to keep open. It doesn't cost you anything to keep this type of account open—even if you don't make any purchases. You can maintain access to it, just in case
- Potential to improve your credit score. A no annual fee credit card could help your score in a variety of ways. Since it costs nothing to keep it open, you can hold onto it and improve the "age of credit history" part of your score. If you stay well below your credit limit, it could help with the credit utilization part of your score which is the part that measures the total amount of available credit you are using. This type of card could also help with the part of your score that factors in your credit mix or the different types of credit you use
How to choose between the two types of cards
As with any comparison of credit cards, you'll want to look at the standard annual percentage rate (APR), late payment fees, and other account basics. Here's some other important topics to consider when you're comparing annual fee and no annual fee cards:
- Look at what you'll mainly use the card for. Consider what you'll buy, and how much you'll purchase. What do you spend in a year on gas, groceries, entertainment, travel, and dining? Use those amounts to see what your rewards might be from both no fee and annual fee cards
- Compare rewards vs. annual fee. Look at the total rewards you might gain from using each card. For the cards with fees, subtract the fee. Now you can see which type of card might bring you the highest return in rewards
- Know the extra perks. Take a close look at what perks the card offers. You can check the cardholder agreement and read the fine print. Make sure the perks benefit you. If you never fly, travel benefits like free baggage checks don't matter much, whether the card has a fee or not. But, if you have an expensive cell phone, having damage/theft protection could bring valuable peace-of-mind
- Align with your financial goals. Make sure any card you apply for lines up with your financial needs. Do you need a card for debt consolidation? To earn rewards? For credit building? You might have to weigh a card's ability to meet your specific needs against an annual fee
Pros and cons of each card
We all have different preferences. For each person, different card types will present their own pros and cons. Here's a quick breakdown to help you choose:
Annual fee cards
- Pros. Annual fee cards often offer great rewards, nice perks, and welcome bonuses. If you take advantage of the greater reward percentages and big sign-up bonuses they might offer, it could offset or exceed the annual fee
- Cons. Some cards have fees from as low as $10 per year, but high-end cards can charge annual fees of $700 or much higher. And that charge often comes at the start of the account, before you earn any rewards to offset the annual fee cost
No annual fee cards
- Pros. Of course, one of the biggest benefits of this type of card is not having to pay an annual fee. For this reason, you won't feel pressured to recoup an annual fee by chasing rewards and fretting about how to redeem points. That said, many no fee cards still offer reward programs and perks
- Cons. No fee cards often have fewer perks and lower reward rates than some annual fee cards
Credit Cards offered at TD Bank
Explore TD Bank credit cards to find the right offer for you and your financial goals.