No Fee Credit Cards

Credit cards could be divided into two categories: those that come with an annual fee and those that do not. In this section, we explain the benefits and drawbacks of having a no fee credit card, and whether or not you should keep one in your wallet.

Keep in mind that some credit cards have annual fees that are waived for the first year, as part of a promotion. Because these cards will have fees after the promotion runs up, we would not put them in the no fee category.

What is a no fee credit card?

Most rewards credit cards require the cardholder to pay an annual fee to the credit card issuer. The annual fee typically ranges from $99-120, although some cheaper and more expensive ones are available. A no fee credit card does not come with an annual fee – and, as a result, may not come with any (or at least fewer) rewards. However, even with a no fee credit card, regular interest charges (typically at 19.99%) and other possible credit card fees will still apply.


Why would you get a no fee credit card?

The benefit of a no fee credit card is obvious: there is no annual fee to use the card. No fee credit cards are great for people who don’t use credit cards often, but who still want to keep one in their wallet. For example, if you only used a credit card to make small online purchases a few times each year, a no fee credit card may be a great option for you. There’s no point paying money for something you’re not using or earning rewards from.

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What are the drawbacks of no fee credit cards?

There’s a saying that “nothing in life is free,” and it’s worth keeping that in mind when thinking about no fee credit cards. Yes, it’s true there will be no annual fee for having the card. However, no fee credit cards do not come with the same perks as cards that do have fees. For example, travel rewards credit cards with annual fees have much better insurance benefits for things like: trip cancellation and interruption insurance, and collision and damage insurance on car rentals.

Another thing to keep in mind with no fee credit cards is that, when they do offer rewards, these benefits tend to be slim compared to cards that come with an annual fee. Cash back credit cards are a perfect example of this.

Case study: No fee vs. fee cash back credit cards

The Scotia Momentum Visa Infinite card has a $99 annual fee and provides up 4% cash back on gas and groceries. The MBNA Smart Cash card has no annual fee but only offers 2% cash back on gas and groceries up to $400/month spending, and only 1% beyond that with more restrictive limitations.

Looking at those two credit cards, whether you should choose the no fee credit card or the card with a $99 annual fee depends on which scenario will leave you better off. You must compare the value of the points earned against your annual fee, and this will depend on your monthly spending.

Let’s assume your monthly spending is $500 on gas and groceries, you make all purchases on your credit card, and you always pay your balance off in full and on time. Here’s the breakdown of how the two cards would work out for you:

Option Cash Back on $20,000 Annual Fee Net Rewards
Scotia Momentum Visa Infinite $500 x 0.04 x 12 = $240 -$99 $141
MBNA Smart Cash ($400 x 0.02 + $100 x 0.01) x 12 = $108 -$0 $108

Based on this amount of monthly spending, the card with the annual fee is actually the better choice. The increased cash back rewards make it a better deal than the no fee card. Once again, though, it all depends how the card is used.

If your monthly spending was only $400 instead of $500, the no fee card would be the wiser choice:

Option Cash Back on $20,000 Annual Fee Net Rewards
Scotia Momentum Visa Infinite $400 x 0.04 x 12 = $192 -$99 $93
MBNA Smart Cash $400 x 0.02 x 12 = $96 -$0 $96

If you are a student or don’t spend very much money, a no fee credit card is a great option. By not paying an annual fee, you will save a considerable amount over time. However, if you spend a lot of money on your credit card each month, you might actually be better off paying an annual fee, as the rewards you earn can easily eclipse the fee you will pay every year to use the card. As mentioned in the above example, it all depends on how much money you spend on your credit card each month. To determine which credit card is right for you, enter your spending into our credit card comparison tool.