5 times when a no annual fee card is worth it

Expensive cards have more perks, but don't neglect cheaper options

Tony Mecia
Personal finance writer
Rewards expert who writes the "Cashing In" reader Q&A column for CreditCards.com

When to get a no annual fee card

You probably know that the credit cards with the most rewards tend to be the high-end, expensive cards – the ones that offer airport lounge access, lots of miles or points for sign-up bonuses, travel credits, and a lot more.

The trouble is, though, that those perks will cost you a lot. While they are rich in rewards, those premium cards carry annual fees of $450 or more. More sensible versions, with fewer perks, run in the range of about $75 to $150 a year.

No annual fee cards come with perks, too

The old adage that “you get what you pay for” often holds true. When it comes to credit cards, though, there are a number of smart reasons to consider a card with no annual fee. You won’t receive the top-of-the-line benefits of the more expensive cards, of course. But here’s why you might think about adding a no-fee credit card to your wallet:

1. You shop a lot at certain retailers.
Most retail credit cards have no annual fee, but they typically offer discounts for shopping at that store. Sometimes the discounts are as much as 5 percent off, as they are with no-fee cards from Target, Amazon/Whole Foods, Gap, Lowe’s Home Improvement, T.J. Maxx/Marshall’s, and Staples.

Even if the discounts are not that high, store credit cards often come with other desirable features such as big discounts on first-time use and regular coupons. Note, though, that many store credit cards come with higher interest rates.

See Related: Best retail store cards: Earn while you shop

2. You have a premium card with a big issuer.
Some of the best-known reward cards come from issuers such as Chase and American Express. And many of those cards have annual fees and give you points in those banks’ reward programs.

But if you cancel those cards before using all the points, you lose the points – unless you have another card from the same issuer that gives you points as a reward. The solution: Before canceling, get a no-annual-fee card from that issuer.

For instance, if you are considering canceling a Chase Sapphire Reserve card (annual fee: $450) or a Chase Sapphire Preferred card (annual fee: $95, waived the first year), and you have Chase Ultimate Reward points remaining, you should first sign up for a Chase Freedom credit card (no annual fee). Same for American Express, which offers the no-fee Blue from American Express® card.

See Related: How to keep your points when you cancel a card

3. You like cash back.
The best travel reward cards come with annual fees, but if you prefer cash back credit cards, you have plenty of options with no annual fees. For instance, Citi Double Cash gives 2 percent back on purchases (1 percent cash back at purchase and then 1 percent cash back upon payment.), as does the Fidelity Rewards Visa Signature. Neither has an annual fee. If you prefer rotating bonus categories, consider no-fee cards such as the Discover it Cash Back card.

See Related: Which reward is better: cash back or travel? 

4. You want a backup card.
Maybe you rely on just one main credit card because you like to consolidate rewards in one program, but it can be helpful to have a second card to fall back on if your main one doesn’t work. Maybe there’s a finicky card reader, or perhaps your card issuer has frozen your card because it suspects fraud on your account.

If that’s the case, you’ll want a second card as a backup, but you might not want to pay an annual fee on that card.

See Related: How many credit cards should you have? 

5. You want to improve your credit.
With some reward cards, people tend to reap sign-up bonuses by opening a card, collecting the points, then closing the card in a short period of time. There’s nothing wrong with that approach, but you might also want to demonstrate to issuers and credit-rating agencies that you have the ability to have an account for a longer period of time.

One factor in your FICO score is length of credit history, which includes assessing how long each of your accounts has been open. With a no-fee card, you can leave the account open for years, helping your credit – even if you no longer use the card. Of course, your credit score depends on many other factors as well, so be sure to manage credit wisely.

See related: How to improve your credit score now

No-annual-fee cards are not as glitzy as their more expensive counterparts. But they can play important roles in your overall rewards strategy.


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Updated: 12-18-2018