Credit cards with no annual fees are a good idea if you're on a budget or are just starting to build up your credit. Another good reason you might want to go with no fee credit cards in Canada is if you don't plan on using the card much and only really need it for emergencies.
The reason that a no annual fee credit card is an attractive option is because it usually includes rewards that the no-fee credit card doesn't, or only has to a lesser extent. These benefits include attractive rewards points systems and higher payouts in terms of cash back rewards. However, an annual fee can be expensive, especially if you're paying it on top of interest charges, and this is when having no annual fee to pay can seem like practical solution.
Benefits of no annual fee cards
The best no fee credit cards in Canada have a number of benefits you can take advantage of, beyond having no annual fee. This includes travel points with purchases, cash back options, low interest rates and no foreign transaction fees. While these benefits may be on a lower scale than fee-paying cards and will vary depending on the card you sign up for, it's easy to find a credit card that suits your needs but doesn't charge an annual fee.
Some cards also include a welcome bonus when you first sign up. This sign up bonus can range from high points for the first six months to a larger cash back amount for a set period of time on certain purchases. While the welcome bonus is a nice benefit, you should consider your long term needs and pick the card that best suits what you're looking for in the future.
But the main benefit is still the absence of an annual fee, making this option great for students or people starting their first job, or anyone who doesn't use a card enough to cover the annual fee cost in rewards points or cash back value.
You still have to make payments
There's no such thing as free credit cards, even if you are looking for a no-fee credit card. When we say "no fee" we're referring to the annual fee that a lot of credit cards have attached to them. This doesn't mean that your credit card is automatically a free credit card, as you would still have to pay interest on any balance that carries over from month to month. But if you pay off your balance in full every month, are never late with payments and avoid cash advances, the only fee you might run into is a foreign transaction fee.
Now that you have a better idea of what no fee credit cards are about you can appreciate the importance of sticking to a payment schedule. This essentially means you need to make a point of paying your credit card bill when it falls due, and avoid over-spending.
The reason you don't want to have a large amount carrying over each month is because interest is charged on the outstanding balance, which gets added to the interest on your purchases in the next month. That's because carrying a balance means that you lose your interest-free days on new purchases. This accumulated interest can result in a higher bill as each month passes, which can quickly get out of hand.
Annual fee payment schedule
You will normally be charged an annual fee in the first monthly statement after you open the card account, and then once a year on each anniversary of account opening.
Annual fee waivers
If you already have, or would prefer, a card with an annual fee and better rewards, you have nothing to lose by asking for an annual fee waiver. Just phone the card provider's service centre and ask for the waiver based on your record of expenditure with a credit card. The bank won't want to lose the merchant fees it earns from your purchases, and the call centre personnel may have discretion to waive the fee to keep your business if your expenditure is high enough.
Some credit cards offer new cardholders an automatic annual fee waiver in the first year.
Alternatives to no annual fee credit cards
If you don't want to use a no annual fee credit card, but are looking for the same payment convenience, you have several alternatives to choose from.
High rewards credit card
The first option is obviously a card with an annual fee. This is a good choice if you're looking for a card that has high rewards, a low interest rate or a significant welcome bonus. While the annual fee can vary depending on the type of credit card you're looking for, the cost is usually outweighed by the rewards if you use the card enough.
The best part of a prepaid credit card is you don't have to worry about an annual fee or interest rates. You just go to the store and buy the prepaid card already loaded with a cash balance. Once the card is ready to go, you can use it anywhere traditional cards are accepted. This includes both brick-and-mortar stores and online shopping.
If you have a check or transaction account in Canada you likely have a debit card. These cards allow you to withdraw money from your bank account at an ATM, as well as make purchases at a store checkout and online. There are no annual fees when it comes to a debit card, but you may have a fee attached to using it depending on the type of account it is linked to.