'No annual fee' credit cards conform to exactly what it says on the tin: you won't be charged an annual fee for having a credit card account and using the card for purchases, bill payments or cash advances. Where other cards may charge annual fees in the range $30 to $1,450 (and even more for prestige business cards), credit cards with no annual fees charge precisely $0.
(For the purposes of comparison, Finty may from time to time include on its 'No annual fee' credit cards page a selection of cards with an annual fee waiver in the first year only.)
'No annual fee' can also mean 'no frills'
All Australian credit cards come loaded with technology, in the form of NFC contactless payment ('Tap & Go') and in most cases mobile contactless payment (i.e. they can be used with Apple Pay and Google Pay), plus high security features (chip and PIN, security codes delivered by SMS, fraud monitoring). In these respects 'no annual fee' credit cards do not differ from the most expensive credit cards on the market. But the similarities stop there.
Most credit cards that come without an annual fee also come without reward or frequent flyer points, and without extensive complimentary benefits (e.g. travel insurance, airport lounge access, free flights). They are aimed at the budget end of the market, or beginner credit card users, and are a good way to find your feet in the world of credit cards without spending too much.
However, there are a few – but only a few – rewards and frequent flyer points cards, or cards with some limited complimentary benefits, with no annual fee.
You'll probably benefit from a 'no annual fee' card if...
... you are the sort of person who only intends using their credit card to fund unexpected emergencies such as car breakdowns, occasional online purchases or for when travelling overseas. In this situation a card that doesn’t charge any account maintenance fees can save you a nice chunk of money. Also, if you don’t intend to use your card regularly then features like rewards programs may simply be a waste of time, as you have to spend quite a lot to earn enough for any sizeable return.
And if you're just starting out on your financial journey – a student perhaps, or someone in their first real job – a card with no annual fee is a good way to get used to handling credit without worrying about paying for the privilege of earning reward points. There will be plenty of time for that later.
You probably won't benefit from a 'no annual fee' card if...
... you expect to spend $15,000 or more a year using your credit card, plus you intend to always pay off your monthly account balance in full and you're prepared to keep track of reward points. Spending this amount means that you should be able to earn at least 15,000 reward points per year, even with a slow-earning card, and even if you redeem your points for retail gift cards they should still be worth about $75 (i.e. around 0.5 cents per point). So you could afford to pay a $75-$80 annual fee for a card that may have other valuable benefits attached. And if you think you'll spend more than $15,000, you could unlock points earning and benefits worth well in excess of your annual fee.
Other ways to save money on your credit card
A credit card with no annual fee is not the only 'cheap' credit card. Here are several other types of card you could choose in order to save money:
- Low interest credit card. This would be a good choice for anyone who expects to carry a balance from month to month, instead of being able to pay off the full balance every month. It's a type of card with an ongoing purchase rate in the range 11%p.a.-14%p.a., rather than the more typical rates of around 18%p.a.-20%+p.a. Your annual interest savings are likely to add up to a lot more than a typical credit card annual fee.
- Balance transfer offer credit card. Card issuers regularly offer new cardholders the opportunity to transfer a balance from their old card and pay no interest on the transferred amount for an introductory period of between six and 24 months or more. You can save a lot of money this way (slightly eroded if there's a 1%-3% balance transfer fee) as long as you are able to repay the transferred balance in full before the revert interest rate kicks in.
- 0% purchase offer credit card. Again, this is a promotional offer made to new cardholders by some card issuers. It presents the opportunity to make credit card purchases for an introductory period (typically between six and 15 months) while making only minimum monthly repayments and paying no interest on the balance carried over from month to month during the introductory offer period. Plan to pay off your balance in full at the end of the introductory offer period though, because once again you'll be looking at a revert interest rate if you can't clear the balance immediately.
- Reward points. This may seem counter-intuitive, because cards with rewards points or frequent flyer points tend to cost more in terms of the annual fee and interest rate. But if you make your card work for you, by choosing a card suitable for your annual spending amount and always paying off your monthly balance in full, you should always save lots more money (by redeeming points wisely and making use of any complimentary benefits) than you will ever spend on annual fees.
- Cashback card. There are two types of cashback credit cards: those with ongoing cashback (e.g. 1% on all eligible purchases, capped at $30 cashback per month) and those with an introductory offer (e.g. $195 cashback for spending $2,000 on eligible purchases within the first three months after account approval). In both cases you'll receive an actual cash credit to your card account, rather than having to swap points for retail spending vouchers.