Why you should get a no annual fee credit card

No annual fee credit cards are useful for some people, but the question can be exactly which people.  The people who are best suited to no annual fee credit cards tend to be the type of people who do not spend a large amount on a credit card, and tend to pay off their balance every month.

No annual fee credit cards tend to have higher interest rates than other types of credit cards.  This will mean that the credit cards are not very good for people who have a considerable balance on their credit card.  It is usually a good idea to compare estimate the interest that would be charged on the credit card with the lowest interest rate and then comparing the difference with the credit card fee that is saved.  The interest that would be charged can be calculated by multiplying the interest rate by the average balance that is charged in the year.

It is better to look at a long term low interest rate for the comparison, as although there are introductory rates that can be as low as zero per cent, these usually only last for a few months and they will need to be replaced by other credit cards offering the same low interest rate – and this can not be guaranteed.

Another thing to consider is how much spending is done on the card.  If there is a lot of spending that is done on the card then it is a good idea to look at reward programs.  There are two types of reward programs – cash back and more traditional reward programs.

Cash back rewards offer cash in return for a certain amount of spending.  The usual long term cash back rate is between 0.25% and 1%.  If there is a lot of spending on the card, for example if a large amount of business or work expenses go through the card then this can be quite a lot of money.

The traditional types of reward programs tend to be offering items such as airline flights on a points based system.  This can be better than cash back as the rewards tend to be more generous, but they need to be suited to the card holder.

In either of these cases if the value of the reward is likely to be greater than the annual fee then this type of card should be looked at rather than a no annual fee card.