The truth about ‘No Annual Fee’ Credit Cards

One of the ways the ways that credit card companies grab your attention is through the famous “No annual fee”. This appeals to our baser instincts, making us think we’re getting something for nothing. However, the credit card companies need to make their money somehow, so if they aren’t charging you money for the fee, they’re making money other ways. This may be through higher fees, through transaction charges or as is often the case, no interest free period, but if you’re looking at a card with no annual fee, look carefully at the details of the card to see what the costs of the no annual fee are.

The ‘No Annual Fee’ Mindset

When you’re first getting a credit card, you’ll probably think you’ll only use it in emergencies, and as such, there doesn’t seem much point in paying an annual fee on a card you’ll barely use. The reality of the situation is that if you only make a couple of purchases a year, you’ll probably end up paying more for that card.

Here’s an example of how this could work

If you made:

• £1000 of purchases a year on an average credit card withNo Annual Fee Comparison Chart
• £50 annual fee and
• 55 interest free days,
• And make all your repayments on time,

You’ve paid £50 for the whole year.

However, if you make

• £1000 of purchases a year on a
• £0 annual fee card with
• 0 interest free days and an
• Interest rate of 20% (no annual fee cards have higher rates)
• Which you repay after 100 days,

You’ve paid £55 for the whole year.

What if I pay off my purchases straight away?

Even if this is the case, then you don’t get any benefit of having a no annual fee card, as you might have well as made

If you do pay off your purchases straight away, it defeats the purpose of a no annual fee card, since you might as well have made a purchase on a 55 interest free day card and have paid no interest. You will also need to think carefully to be sure that you’ll always be able to pay off the card straight away.

The only time a credit card with no annual fee will help you is if you don’t own a card already, and plan to spend less than £500 per annum which you know will take you more than 55 and less than 150 days to pay off. Otherwise, you should think very carefully about the no annual fee card.

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