How credit card annual fees work

By   |   Verified by David Boyd   |   Updated 28th March 2022

Credit card annual fees are a common type of credit card fee. Not every card has them, so you may be wondering what they are and whether they are worth paying.

Scroll down to find out how annual fees work, how to avoid them, and more.

You can avoid paying annual fees with a no annual fee credit card.

What is a credit card annual fee?

The annual fee — if there is one — is what it costs to use a credit card. It is a recurring fee charged once each year while the account is open.

Not every credit card has an annual fee, but those that do tend to come with additional perks like rewards, cashback, insurance, and airport lounge access. Since it's possible to get a credit card with no annual fee, the value of any perks and benefits should exceed the cost of the annual fee.

How do banks charge the annual fee?

Banks add the cost of the annual fee to your credit card statement. You can pay it off like any other credit card purchase.

When will the annual fee be charged?

Normally the annual fee will be charged every year on the anniversary of getting your credit card.

How much do they cost?

The cost of credit card annual fees vary considerably.

  • Free. Some credit cards have no annual fee at all.
  • Free for an introductory period. Some cards have no annual fee for a period of time. A year is typical, but it can sometimes be for longer. Once the introductory period ends, the ongoing annual fee will be charged.
  • Gold and platinum cards. Annual fees for this level of card vary from $100 - $200.
  • Black and metal cards. These can vary from $300 - $1,500.

Why do banks charge an annual fee?

There are two main reasons why banks charge an annual fee on credit cards.

  • The annual fee covers the cost of administering the business, for example, developing online services, marketing, customer acquisition, defaults, etc.
  • For cards with rewards and other benefits, the annual fee helps cover the higher cost of maintenance and operations.

Is it worth paying the annual fee?

Whether the annual fee is worth paying or not depends on your personal circumstances.

  • If the annual fee is affordable and you are using your credit card responsibly, then paying the annual fee may be worth it since it can be useful in emergencies.
  • If you have a rewards card with a more expensive annual fee, are you making use of its benefits? If not, paying the annual fee just may not be worth it.
  • If you value the benefits available — e.g. earning rewards points, travel insurance, and lounge access — then the annual fee may be worth paying.

In the end, you're the judge of how valuable the card is.

Do you have to pay the annual fee if you don't use the credit card?

Yes. The annual fee will be charged whether you have been using the card or not.

How can you avoid paying an annual fee?

If you are still comparing credit cards, you can avoid the annual fee by choosing a card without one.

If you have recently been approved for a credit card with the annual fee waived for the first year, you can avoid paying the annual fee by closing the account within a year of getting the card.

If you have been paying the credit card annual fee and want to avoid it in future, there are several options open to you.

  • Call the bank and negotiate. It may not be possible to have the annual fee waived completely, but a reduced fee is better than nothing. In your conversation you could ask them to match an offer or let them know you are considering closing the account.
  • Switch to a free card at the same bank. Many rewards cards are available in basic, gold, platinum, and black versions. You could request to switch to the most basic version to save on the annual fee.
  • Earn rewards and convert to cash. If your card earns rewards, you may be able to convert points to cash and use that to pay the annual fee. However, this is a poor redemption.
  • Cancel the card. If all else fails, you could close the account. In order to do so, you cannot have an outstanding balance. If you are unable to pay off the balance in full, you could consider balance transferring to a new card — ideally with no annual fee — and then closing your old card.

What happens if you don't pay the annual fee?

Not paying your annual fee can have serious ramifications. Since the annual fee is added to your outstanding balance, not paying it means you will have missed a payment. Not only does this mean incurring a late fee, it will also damage your credit score since this will be reported to the credit bureaus.