One in four U.S. credit cards has an annual fee, but that doesn’t mean borrowers have to pay them
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Just one in four U.S. credit cards require customers to pay an annual fee, according to CreditCards.com data, but experts say even those fees may be eliminated by picking up the phone.
Out of the 108 credit cards surveyed by CreditCards.com, 28 cards require a yearly payment for card use, at a median cost of $50. Some experts had warned that annual fees would surge in the wake of the Credit CARD Act as banks looked to make up for lost revenue. That prediction, however, hasn’t come to pass. What we found was a small number of cards with a wide variety of fees, ranging from $18 to $500.
But just because the annual fees are part of your terms and conditions, that doesn’t mean that you’re stuck with them. The annual fees on several cards will be waived if the cardholder makes a certain number of purchases. Cardholders may even be able to get their fees waived just by asking, even if the down economy and tight lending standards make that more of a challenge.
“Yes, it’s still possible to get annual fees waived, although it’s more difficult than before,” says Ramit Sethi, author of “I Will Teach You to Be Rich.”
What the survey found
The potential savings from getting a fee waived can vary widely. On the low end of the annual fee spectrum, the Wells Fargo Secured Card charges $18. Secured cardholders are more likely to have a low annual fee, with three of the four lowest fees associated with secured cards, which establish a line of credit using a cash deposit from the borrower.
On the high end, the Citi Chairman American Express card had the costliest annual fee at $500 per year. Citi didn’t provide comment on how it arrives at that pricing level. Nearly as expensive, the Visa Black Card carries an annual fee of $495, making it the second costliest card. No other card has an annual fee above $95.
Do you really have to pay?
Though most cards’ fees are far cheaper than those of the Chairman and the Black Card, that doesn’t mean borrowers have to pay them.
Some terms and conditions enable consumers to get their annual fees waived, with four cards refunding the fee to cardholders who make above a minimum number of yearly transactions. The U.S. Bank Visa Platinum card, for example, charges an annual fee of $40 only if the card isn’t used for a single transaction.
Experts say that by waiving fees for a minimum number of charges, banks are encouraging the use of their particular credit card. That can be an important business strategy when the cardholder has a wallet full of plastic. Banking industry analyst Elizabeth Rowe explains that while consumers may get a more substantial reward at higher spending levels — such as providing an airline ticket in exchange for thousands of dollars in charges — the rewards can begin at lower dollar levels. “Even if you’re focused on long term gains, it makes sense to build in short-term gains as well to keep the customer energy going,” Rowe says. Rewards such as annual fee waivers help drive card use while simultaneously building the psychological connection between borrower and bank.
Some consumer advocates see these “activity” fee refunds a little differently, however, since the law now bans charging inactivity fees for lack of card use. “I won’t be surprised if this is challenged by the regulators,” says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. “I understand that banks are trying to recoup monies lost through the CARD Act, but since the Act prohibits inactivity fees, this stipulation seems to cross the line,” Cunningham says. But others don’t have a problem with what many say are essentially inactivity fees under a new guise. “I think this has been around some time,” says Steve Brobeck, executive director of the Consumer Federation of America, in an e-mail. “But I don’t strongly object because it should have the beneficial effect of urging consumers not to carry unnecessary cards,” he says.
How to avoid annual fees
Before canceling unnecessary cards, experts urge borrowers to try another approach. “You can read about all kinds of fancy tactics, but 95 percent of people fail to ever pick up the phone and make a phone call,” Sethi says. “Make the call and say, ‘Hi, I noticed I have a $50 annual fee. I’d like to get that waived. How can you help me do that?'” Cunningham agrees. “Always ask. You have nothing to lose,” she says.
Still, not all approaches to getting an annual fee waived are created equal, so keep the following tips in mind:
Be a good customer. Having a good relationship with your issuer can help you eliminate annual fees. “You’re more likely to get fees waived if you’ve been a long-time customer and you have a significant credit limit. But the key is asking,” Sethi says.
Don’t threaten unless you mean it. Customer service representatives have heard it all before, so think about what you plan to say before dialing in anger. Banks “hear the threat of taking your business elsewhere every day, so don’t play that card unless you are actually willing to do it,” says Cunningham.
Only cancel if you have other plastic. Since getting a new card is now tougher for the average borrower, be sure you have another credit card available. “We don’t want people asking to have an annual fee waived, being told no, and then having a knee-jerk reaction and closing the card only to find themselves without access to credit,” Cunningham says.
Consider your credit score. Closing a card to avoid an annual fee could have a negative impact on your credit score. That’s because when an account gets closed, it can eliminate the line of credit associated with that card, thus increasing the ratio of debt relative to credit lines. In such circumstances, the higher cost of borrowing could more than offset any annual fee savings.
If the bank won’t agree to waive the fee, cardholders may need to instead focus their energies on responsible borrowing. “Consumers may have to grin and bear it,” Cunningham says. “In our current economic environment, I advise consumers to treat their existing credit responsibly, because obtaining new lines of credit is somewhat difficult except for those with pristine credit reports and high credit scores,” she says.
See related: Credit card lending standards loosen for 1st time in 3 years, Canceling a card can hurt your credit score, Will canceling your credit card hurt your credit score?, Credit card reform law and you