New high-end cards boost average cost of annual fee cards
Study pegs average annual fee at $163, nearly double a year ago
By Tamara E. Holmes | Published: June 23, 2014
Luckily for consumers, most credit cards do not carry an annual fee. But among those that do, the cost of credit is on the rise.
The average annual fee was $163 in April, up from $101 in March, according to research from Credit Suisse and Mintel Comperemedia. Both months were significantly higher than the $87 average annual fee in April 2013.
"In general, fee-based cards are becoming more expensive," says Lisa Hronek, client development manager at Mintel.
One reason for the surge: there are more high-fee credit card products with exclusive benefits, say researchers with Credit Suisse and Mintel. For example, American Express' Platinum Card has a $450 annual fee, Citi's Prestige Card carries a $450 annual fee and Barclays' Visa Black Card has a $495 annual fee.
All annual fees not the same
So who's in the market for a card with an annual fee? Some cards are designed with well-heeled customers in mind. "Some prestigious cards have as much as $500 annual fees," says David C. Jones, president of the Association of Independent Consumer Credit Counseling Agencies.
A consumer might choose such a card for its rich travel rewards programs. For example, users of Citi's Prestige card periodically get free airline tickets for a companion and complimentary fourth night stays at select luxury hotels, as well as access to exclusive airport lounges across the globe.
Other consumers turn to these high-fee cards for the prestige factor. For example, Barclays refers to users of the Visa Black Card as "members" and offers such benefits as a 24-hour concierge service and VIP treatment at hotels and resorts across the world. The Black Card also is made of stainless steel, which provides an air of exclusivity.
Other cards with annual fees are targeted to consumers with less-than-stellar credit. In many cases, a card with an annual fee is the only card a consumer with a low credit score can get, says Jones. These cards won't be anywhere near the $400 to $500 range. In fact, the most common cost of an annual fee is $95, says Brian Riley, research director with CEB Towergroup.
To pay or not to pay
While high-fee cards such as the Black Card can be exclusive, they're "not always the best choice for most consumers," Jones says.
In order for a credit card with an annual fee to make sense, "the rewards received must offset the fees," says Jones. For example, an annual fee for a card that awards frequent flier miles could be a wise choice if the cardholder saves more on travel expenses than the cost of the fee.
Ann Estes, vice president of strategic partnerships for Columbus, Ohio-based credit counseling organization Apprisen had been paying an annual fee for a credit card that offered airline points for years when she compared the cost of the annual fee to the amount she could save if she simply bought her plane tickets early online. She was surprised to discover that she wasn't really saving anything with the fee card. "When I called the creditor I informed them that I simply did not want to pay an annual fee any longer," she says, and she was awarded a new no-fee card.
If your have a low credit score you might have a more difficult time qualifying for a card with no annual fee, but as your credit score improves, you can begin to shop around, Jones advises.
One thing that consumers have in their favor: a plethora of cards to choose from. The top 15 credit card issuers in the U.S. have 230 different card plans, so two cards from the same issuer can offer very different terms, Riley says. Also, the percentage of cards with annual fees is relatively low. According to research from Credit Suisse and Mintel Comperemedia, approximately 15 percent of credit card offers had an annual fee in April, down from 17 percent in March.
The key to finding the right card is reading the fine print and being willing to ask for better terms. "Never be afraid to seek out other options that may be available with your creditor," Estes says.See related: Rewards card switch: from fee to no-fee, Avoiding your reward card's annual fee
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