No Annual Fee Reward Credit Card Benefits

by : Stephen Chua

If you have taken a look or even a glance at all the credit card advertisements in the newspaper, magazines, unsolicited emails or even bulk postal mails, you will probably notice a common trend. More and more of them are stating that their credit cards do not carry any annual fee. This certainly looks like good news to all of us.

But are there any real benefits to owning a no annual fee credit card?

First of all, you need to understand that the bulk of the revenue from credit card companies come from the finance charges and annual fees associated with the card. If you do not pay off your credit card balance in full, you will need to pay interest. On top of that, if you exceed your card limit or do not make your monthly payment on time, you are slapped with an extra finance charge. And if you withdraw cash from your card, you also need to pay some form of surcharge. These are just a few common ways that credit card companies make money from you.

For credit cards that do not carry annual fee, the interest rate associated with them is likely to be higher than those with an annual fee. This makes sense, as the card companies want to offset their revenue loss from the annual fee by charging a higher interest rate. In fact, the gain from the higher interest rate can even be more lucrative than the annual fee alone.

However, there are still some benefits to owning such a card. If you are one of the minority of people who pay off the entire outstanding balance in full each month, a no annual fee credit card is actually going to do you a lot of good. There is no need to pay any additional fee to the card companies or go through the trouble of asking for a waiver of the fee at the end of the year. You can use the extra money for other purpose.

This type of card can also benefit those who carry very little outstanding balance. Typically, if you roll over less than fifty dollars each month, you can still gain some benefits from such a card. The interest you pay is likely to be less than the annual fee. However, you have to do some calculation here based on an analysis of your spending habits. Make sure that the total interest you will be paying in a year is less than the annual fee of similar card.

For those people who like to roll over large amount of balance to the following month, it probably makes more sense to a use a low interest rate credit card. As interest is compounded every day, the saving gained from not paying annual fee will be eliminated in a very short period of time if your card comes with no annual fee but high interest rate.

Ultimately, you have to understand your own money management style in order to determine if a no annual fee credit card is for you. It is great not to pay annual fee but if you are unable to manage your money well, the little saving from not paying annual fee is not going to help you.