No Annual Fee Credit Cards

Why do some of the best credit cards have annual fees? It’s understandable if you’re confused as to why many of the credit cards catered to people with the best credit scores have annual fees. I mean, one would think that the best consumers would get the best cards and that the best cards would have no fees. While counterintuitive, some of the best credit cards have annual fees because in opening a card with an annual fee, consumers are making an implicit agreement to use their cards often. No one would want pick a fee card vs. a no fee card unless they’re planning on using it. Given that usage leads to additional revenue, banks are willing to give better rewards and benefits in return for the customer’s “commitment.” In other words, you have a win-win situation where both consumers and banks are better off.

Are there any credit cards without fees whatsoever? When people talk about no fee credit cards, they usually mean those without monthly or annual membership fees. However, some consumers are interested in finding a true no fee credit card--one that doesn’t have past due fees, over-limit fees, balance transfer fees or foreign exchange fees in addition to not having membership fees. And while there are indeed certain credit cards--like the Citi Simplicity card--that are devoid of most such fees, everyone interested in one should understand two important things:

First, if you have reason to want a card without over-limit and past due fees, you shouldn't be looking for a credit card at all because the damage you’ll do to your credit by missing payments or going over limit will surely outweigh the monetary value of any fee levied for these offenses. This is especially true in this post-CARD Act era, where penalty fees have decreased significantly, given that they must be commensurate to the offenses that caused them (e.g. if you exceed your limit by $5, the fee for doing so can be no more than $5).

Secondly, there’s no perfect credit card. Everything has pros and cons, and credit cards with no fees across the board undoubtedly sacrifice other key account terms. This is the very reason why cards without balance transfer fees have higher transfer APRs, rewards cards without fees have less attractive perks, and so on. When looking for a card, you should therefore focus only on the attributes that will really matter, given your lifestyle and spending habits. After all, if you plan on using your card for rewards, why would you care if it has a balance transfer fee?