Annual fee

What It Means

An annual fee is a charge a credit card bills once a year for keeping the account open, whether or not you use it. Experian says it's usually charged when you first get the card and again on each account anniversaryAnniversaryThe date each year that marks a past event, most often a wedding, and the celebration held on it. See more, though some cards waive it for the first year. The fee is disclosed in the application and the cardholder agreement, and it appears in the card's Schumer box, the standard table of rates and fees issuers are legally required to show.

How People Say It

• "Is the annual fee worth it on that card?"
• "They waived the fee the first year, so I'll decide next summer."
• "I downgraded to the no-fee version before it renewed."

The Breakdown

Worked example. Chris pays his card in full every month and spends about $1,500 on it. He's comparing a card with a $95 annual fee that pays 2% back against a no-fee card that pays 1.5% (example rates):

The extra half percent earns Chris $90 a year, which falls $5 short of the fee. To cover a $95 fee with a 0.5% edge, he'd need to spend $19,000 a year, about $1,583 a month.

What the result means. A fee earns its place only when the extra rewards and benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more you'd really use are worth more than the fee. If your spending sits below the break-even line, the free card does as well or better. Spending more just to reach the line costs you more than the rewards give back.

Good to Know

Check the Schumer box before you apply: Experian and Capital One both describe it as the legally required table that lists a card's annual fee along with its interest ratesInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more and other fees. If a card's fee no longer earns its keep, Experian says you may be able to downgrade to a no-fee version or close the card before your account anniversary to avoid being billed for another year. And if you carry a balance, the interest will generally outweigh any rewards a fee card pays, a point Buhata's credit card rewardsCredit card rewardsCash back, points or miles a credit card pays you on your spending, worth only what the program lets you redeem them for. See more page covers in detail.

Related Terms and Categories

• Credit card rewards

  Cash back, points or miles a credit card pays you on your spending, worth only what the program lets you redeem them for.

• Store credit card

  A credit card offered by a retailer, either usable only at that store or co-branded with a card network, often with store discounts and a higher APR.

• Foreign transaction fee

  A fee a card provider charges, usually a percentage of the transaction, when you use the card in another country or pay in a foreign currency.

• Statement balance

  What you owed on a credit card when the billing cycle closed, as printed on that month's statement.

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