If you’re shopping for a rewards credit card (or already have one in your wallet), odds are you’re familiar with what an annual fee is and have put considerable thought into how to avoid paying it.
In the list of potential fees credit card holders have to account for – from interest to balance transfer fees – an annual fee is arguably the most straight forward and is defined as an automated bill that is charged every year in exchange for possessing a card. Annual fees are not universal to all cards and tend to accompany cards that offer premium rewards or perks.
Below, we run through some basics about annual credit card fees and offer five strategies to help you get out of paying this fee on your card.
How much are annual credit card fees? (+)
While there’s no set amount, annual credit card fees typically hover between $30 and $150, with the majority of rewards cards charging around $120.
There is a small selection of ultra-premium credit cards that do charge annual fees above the $500 mark, such as the American Express Platinum Card, but these cards have high qualification requirements and offer an assortment of high-end perks not available on other cards.
Why get a credit card with an annual fee? (+)
While it can almost seem counterintuitive to pay an annual fee for a credit card (after all, who wants to pay to spend money?), the right combination of rewards and benefits can offer far more in return than the extra $120 or so it costs in fees. Especially if you use your credit card for the majority of your purchases.
From the ability to earn more rewards on every purchase to comprehensive travel insurance coverage, and more, annual fee cards can offer a ton more rewards and persk than even the best no fee credit cards.
When is an annual credit card fee charged? (+)
Most annual credit card fees are charged once in a calendar year – usually on the first monthly statement after your account is opened and every twelve months going forward.
There are exceptions to the norm, however. The American Express Cobalt, for one, has a fee structure that mirrors that of a Netflix subscription and charges $10 on the first of every month. All in all, the way annual fees are charged can vary, so it’s always best to read the terms and conditions of your credit card to avoid any surprises.
In terms of how they’re charged, annual fees appear on your credit card statement like any other purchase.
5 ways to avoid annual credit card fees
1. Open a premium bank account that offers credit card annual fee waivers
Not entirely unlike how insurance companies offer savings when you bundle your home and auto coverage, some banks will rebate the annual fee on their credit cards if you also have an accompanying chequing account with them.
For instance, if you open a Scotiabank Ultimate Package, Scotiabank will automatically waive the annual fee on one of their premium cards on an ongoing basis – like the Scotiabank Passport Visa Infinite or the Scotia Momentum Visa Infinite.
In the case of the TD Aeroplan Visa Infinite, you can receive a full rebate on the card’s $139 annual fee when you also have a TD All-Inclusive Account. The same goes for the BMO World Elite Mastercard’s $150 annual fee and the BMO Premium Plan account, as well as RBC Visa Infinite Avion’s $120 fee and the RBC VIP Banking Account.
It’s important to note that simply having a credit card and chequing account with the same bank isn’t enough. To waive your annual credit card fee, most banks require you to have a premium account.
Emphasis on the word premium here – these accounts require that you maintain a minimum balance of several thousand dollars in your chequing account at all times or they’ll charge a monthly fee. The Scotiabank Ultimate Package, for instance, is $0 per month as long as you maintain a minimum balance of $5,000, otherwise it’ll cost you $30.95 per month. Depending on your cash flow and your ability to park money in the bank, you’ll want to consider whether this is the most effective way for you to avoid annual credit card fees.
You may also be eligible to have your credit card’s annual fees reduced or rebated if you carry multiple financial products (such as a mortgage or home line of credit) with the same bank.
2. Ask your bank to waive your credit card’s annual fees
As the saying goes, it never hurts to ask.
Credit card providers spend a pretty penny on marketing campaigns and sign-up bonuses to woo new customers, and that means they’ll often go to great lengths to retain existing ones. While getting an annual fee waiver just for contacting your credit card provider is far from guaranteed, there’s no loss in trying.
Tips on how to negotiate an annual fee waiver
- Skip the live chat option and pick up the phone: While it may be more convenient, customer service reps who answer questions over a bank’s website chat feature or over social media are usually only there to provide clear-cut answers to common questions versus making adjustments to your personal account. You’ll have far better luck by calling the number on the back of your card.
- Mention competitors: Is another bank currently offering a better credit card deal? You may want to slip that into the conversation since it’ll show you’ve done your research and are serious about potentially taking your business elsewhere.
- Give a compelling reason: While everyone wants to avoid paying fees, providing a compelling and personal reason why can help legitimize your case. Do you have a travel credit card with points and perks you’re not able to fully take advantage of due to COVID-19? Bring it up!
- Leverage your loyalty: Banks tend to be more receptive to requests for annual fee waivers if the person who’s dialling in is either a long-time client or uses a number of their financial accounts. If you have a mortgage or line of credit with the same bank as your credit card, make sure to leverage that fact.
- Ask to be transferred to someone else: The first person to pick up your call might not have the authority to waive your fee. You can ask to speak with a manager or the retention department.
- Actually use the card: Avoiding the annual fee can be a lot easier if you use your card often. Banks earn a cut of every transaction you make, so if your card has a lot of activity, waiving the fee won’t be as much of a compromise on the bank’s part and you could face less resistance.
- Hang up and try again: Odds are, you’ll get some pushback from the customer service rep who may even say a fee waiver isn’t possible. If that’s the case, hang up and try again. You may get paired with another rep who’s more receptive and willing to help. Just be patient. You might not be successful on your first, second, or even third try.
- Be prepared to close your account: You’ll have a lot more negotiating power if you’re actually willing to close your credit card if you don’t get the fee waiver you want. Just be prepared to follow through and make sure you understand how to close your credit card the right way (e.g. ensuring you don’t owe a balance, cancelling all your recurring payments; etc.)
- Find middle ground: If you’re not successful but don’t want to cancel or downgrade your card, poke around to see if you can reach a compromise in the form of an annual fee reduction or a rewards bonus.
One additional bit of advice – while your phone call may involve a fair bit of back-and-forth negotiations and instances of being put on hold, try to avoid confrontation. After all, there’s a real person on the other line, and a little politeness can go a long way in securing some goodwill and a deal on your card.
3. Ask to downgrade your credit card
If your credit card is costing you more in annual fees than what you’re recouping in points or cash back, you might want to opt for a no or low fee alternative from the same bank.
Depending on the credit card provider, you can switch to another card with little to no impact on your credit score while retaining your rewards balance and credit limit. For instance, you could downgrade from the TD First Class Visa Infinite ($120 annual fee) to the TD Rewards Visa ($0 annual fee) without losing any of your TD points.
Just be aware: by downgrading your card to a no-fee alternative, you’ll earn fewer rewards and have access to less perks. All that said, it shouldn’t be too big of a compromise if you weren’t earning enough rewards to offset the annual fee in the first place.
4. Cancel your credit card
If you’re juggling multiple credit cards with annual fees or you’re looking to switch to another credit card provider, another course of action to consider is cancelling your card altogether. While cancelling your credit card can result in a temporary ding to your credit score, it can have a positive impact on your finances in the long-term.
Before closing a card though, you’ll want to make sure of a few things.
First, if it’s a rewards credit card, ensure you don’t lose out on any points or cash back you’ve accumulated on the card and aim to redeem them before shutting down your account. Second, don’t close your account until you’ve completely cleared off your balance. Closing a credit card with a balance doesn’t magically make what you owe disappear, and you could get stuck owing more interest and hurting your credit score. If you can’t quite clear off your balance but still want to close your card, you could consider setting up a balance transfer to move what you owe to another credit card that you plan on keeping.
Finally, you’ll want to cancel any recurring bills charged to your card – so review your statements carefully to spot automatic payments that you might have forgotten about.
5. Seek out credit cards that waive their annual fees for the first year
At any one time, card providers will waive the annual fees on some of their best credit cards for the first year for new applicants. For example, the TD CashBack Visa Infinite’s $120 annual fee is rebated for the first year for anyone who applies by May 30, 2021.
While the annual fee will eventually kick in after the promotional period expires, you’ll still pay no fees for an entire year – during which you can accumulate rewards and get a real sense of whether the credit card is right for you based on your personal spending habits.
Gift cards or free rewards points are other popular types of sign-up bonuses that can help to offset the cost of annual fees for cardholders. For the latter, you may be required to spend a certain amount on your card (e.g. $1,000 in the first 3 months) to be eligible to receive the bonus.
One last tip
If you’re a couple with joint finances but are carrying separate credit cards and paying an annual fee on each, it could be worth sharing a single joint credit card instead, and in turn, save on fees. For example, the American Express SimplyCash Preferred has an annual fee of $99 for the primary cardholder but doesn’t charge anything to add authorized users – so you (or your partner) can pick up a second card without having to pay extra. For some cards, it can cost as little as $25 annually to add an authorized user.
Now I know this isn’t technically waiving a fee on your existing card. And yes, carrying a joint credit card has its own complexities (the primary cardholder will owe the entire balance and authorized users won’t build their credit history). But if you’ve already joined finances and both pay annual fees, it could help your wallet.