Money & Career
Are credit cards with annual fees a bad idea?
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Money & Career
Are credit cards with annual fees a bad idea?
Whether it's a cash advance charge, late payment fee or an overage penalty, credit cards come with plenty of fees that you have no control over. And what about credit cards with an annual fee? An annual fee is charged by the credit card company as either a one-time charge each year on your credit card, or it could be divided evenly and charged to your account monthly.
But with so many sign-up bonuses, and the potential to earn rewards points, when do you know if paying the annual fee is worth it? And, since many credit cards don't require paying any fees, are credit cards with annual fees a bad idea?
Kelvin Mangaroo, President of RateSupermarket.ca, believes that many no-fee credit cards today have similar rewards rates, protection coverage and added perks that previously only came to those who were willing to pay a fee for their credit card.
"Back in the day, an annual fee would generally mean better rewards benefits and additional insurance features, such as flight delay coverage or travel medical insurance," Mangaroo explains. "Today, you can find no-fee cards that offer great returns when it comes to rewards. In other words, a 'no-fee credit card' no longer means 'no frills'."
Credit cards with annual fees: Are they worth it or not?
The key to deciding whether credit cards with annual fees are a good idea is to see what features a particular card offers – like rewards miles, travel points, or cash-back incentives -- and put an actual dollar figure on these benefits to see if it outweighs the cost of the fee.
Capital One Aspire World MasterCard
If you're an avid traveler, the Capital One Aspire World MasterCard might look attractive to you. It has a $120 annual fee, but it offers a sign-up bonus of 35,000 reward miles. This bonus is equivalent to $350, which can be put towards your next trip. You will also receive 10,000 rewards miles annually (equivalent to $100), meaning that without having used the card, you are essentially only paying $20 per year. The card also lets you earn two rewards miles for every $1 charged to the card, which is equivalent to 2 per cent back in travel rewards.
MBNA MasterCard
MBNA MasterCard comes with no annual fee. It offers 5 per cent cash back on all of your gas and grocery purchases for the first six months, and 3 per cent cash back on purchases afterwards. You will also earn 1 per cent cash back on all other purchases.
And, unlike the Capital One Aspire World MasterCard, where you must use your rewards points towards future travel, with the MBNA MasterCard, you will receive cash back cheques in the mail. This gives you the flexibility to decide how your credit card rewards are spent.
Do you really need rewards?
However, if you're trying to consolidate your credit balances onto one card, or if you're someone who carries a credit card balance, often times rewards cards don't make much sense because of how much interest you end up paying each month.
Some annual fee credit cards come with a lower interest rate, and more often than not, the savings on interest will outweigh the fee.
It can be easy to dismiss credit cards with annual fees, because let's face it -- nobody wants to get charged for something they can get for free! But sometimes the perks can outweigh the fees, and it's up to you to do your research and carefully consider what you need from a credit card.
But with so many sign-up bonuses, and the potential to earn rewards points, when do you know if paying the annual fee is worth it? And, since many credit cards don't require paying any fees, are credit cards with annual fees a bad idea?
Kelvin Mangaroo, President of RateSupermarket.ca, believes that many no-fee credit cards today have similar rewards rates, protection coverage and added perks that previously only came to those who were willing to pay a fee for their credit card.
"Back in the day, an annual fee would generally mean better rewards benefits and additional insurance features, such as flight delay coverage or travel medical insurance," Mangaroo explains. "Today, you can find no-fee cards that offer great returns when it comes to rewards. In other words, a 'no-fee credit card' no longer means 'no frills'."
Credit cards with annual fees: Are they worth it or not?
The key to deciding whether credit cards with annual fees are a good idea is to see what features a particular card offers – like rewards miles, travel points, or cash-back incentives -- and put an actual dollar figure on these benefits to see if it outweighs the cost of the fee.
Capital One Aspire World MasterCard
If you're an avid traveler, the Capital One Aspire World MasterCard might look attractive to you. It has a $120 annual fee, but it offers a sign-up bonus of 35,000 reward miles. This bonus is equivalent to $350, which can be put towards your next trip. You will also receive 10,000 rewards miles annually (equivalent to $100), meaning that without having used the card, you are essentially only paying $20 per year. The card also lets you earn two rewards miles for every $1 charged to the card, which is equivalent to 2 per cent back in travel rewards.
MBNA MasterCard
MBNA MasterCard comes with no annual fee. It offers 5 per cent cash back on all of your gas and grocery purchases for the first six months, and 3 per cent cash back on purchases afterwards. You will also earn 1 per cent cash back on all other purchases.
And, unlike the Capital One Aspire World MasterCard, where you must use your rewards points towards future travel, with the MBNA MasterCard, you will receive cash back cheques in the mail. This gives you the flexibility to decide how your credit card rewards are spent.
Do you really need rewards?
However, if you're trying to consolidate your credit balances onto one card, or if you're someone who carries a credit card balance, often times rewards cards don't make much sense because of how much interest you end up paying each month.
Some annual fee credit cards come with a lower interest rate, and more often than not, the savings on interest will outweigh the fee.
It can be easy to dismiss credit cards with annual fees, because let's face it -- nobody wants to get charged for something they can get for free! But sometimes the perks can outweigh the fees, and it's up to you to do your research and carefully consider what you need from a credit card.
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