Credit Card Annual Fee Explained

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Credit card annual fees are a cost that your credit card provider automatically charges to your account to allow you to keep the card account open. They are a common type of credit card fee.

Annual fees are the amount you pay for the benefits that come with your credit card. Not all credit cards have these fees. Generally, the higher the annual fee, the more benefits the credit card provides.

Which Credit Cards Have an Annual Fee?

Not all credit cards have an annual fee. Cards that usually have an annual fee usually provide some extra benefit, such as:

  • Reward cards
  • Premium credit cards
  • Secured credit cards

Because an annual fee increases the cost of having a credit card, any benefit you're getting from your credit card should exceed that cost. For example, if your rewards credit card has an annual fee, the rewards you earn should exceed the amount you are paying to keep the card open. Otherwise, you are losing money.

How Your Credit Card Fee Is Charged

The annual fee might be a one-time charge on your credit card during a specific month of the year, such as on the anniversary of the date you opened the card or at the beginning of the calendar year. Some credit providers divide up fees and assess them monthly, but it is common for cards to charge the annual fee once a year.

Annual fees are a separate charge from any interest payments you might incur on your account. They are charged whether or not you carry a balance on your card. Credit card issuers are legally required to disclose all annual fees when you apply to open an account.

Changes to Your Credit Card Annual Fee

If your credit card issuer decides to impose a new annual fee or raise the current one, they're required by federal law to notify you 45 days before the new annual fee becomes effective. You have the option to reject the new annual fee.

If you decide to reject the fee, you will have to close your credit card account. If that happens, you may want to look into opening a no-fee card in order to avoid lowering your credit score.

Should You Get a Credit Card With an Annual Fee?

Paying an annual fee isn't always a bad thing, especially if you use all the rewards that come with your credit card. If the card you want has an annual fee, be honest about whether the benefits of the card will outweigh the cost of the fee. Compare your card to similar credit cards from other card issuers to confirm you're getting a good deal.

Some cards that charge an annual fee may waive it in the first year in order to attract new customers. After the first year, the fee is automatically charged to your account. If you are interested in a rewards card but unsure whether the fee is worth it, look for one with a no-fee first year to assess whether the benefits outweigh the costs.

How to Avoid a Credit Card Annual Fee

If you decide the annual fee isn't worth it after the first year of using the card, you can close the account. Before you do, you should:

  • Assess the impact on your credit score.
  • Redeem any rewards you've accumulated.
  • Check if you can switch to a no-fee credit card with the same issuer.

Switching to another credit card can allow you to avoid an annual fee without damaging your credit score. Downgrading your account may cost you some benefits or prevent you from earning any rewards at all. However, by downgrading, you've avoided the annual fee, which may make more financial sense if you were not using the rewards associated with it.

Some credit cards may waive the annual fee on a regular basis if you charge a certain amount on your credit card each year. Contact your credit card issuer to find out if your annual fee can be waived based on your account activity, payment history, or length of time as a customer.

Frequently Asked Questions (FAQs)

How do you pay an annual fee on a credit card?

Your credit card issuer will typically charge your annual fee to your billing statement automatically once a year, around the time when you initially opened an account. This will raise your statement balance for that period.

How can I get rid of the annual fee on my credit card?

Annual credit card fees are set by the card issuer in exchange for certain card benefits or rewards. You won't be able to get rid of the fee without closing the card. In some cases, the issuer may waive the fee for a set period of time, such as the first year after you open the account.

What is the best credit card with no annual fee?

There are plenty of great rewards cards with no annual fee, such as the Bank of America Travel Rewards card, Discover It Miles, and the HSBC Cash Rewards Mastercard.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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