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What Does Annual Fee Mean on a Credit Card?

An annual credit fee is a cost that your credit card provider will automatically charge to your account. This fee is commonly applied to keep the card account open.

Annual fees are the charges you pay for the benefits that are utilized through your credit card provider. Not every credit card comes with fees. However, the higher the annual fee, the more benefits you receive from the credit card provider.

Credit cards have annual fees for a few reasons. Credit card providers that charge their customers an annual fee often provide extra benefits. These benefits may come from:

  • Cash-back Reward credit cards
  • Premium credit cards
  • Secured cards
  • Travel Reward credit cards

Because annual fees can increase depending on the type of card, any benefit that you’re getting from the credit card will exceed that cost. For example, if your credit card has an annual fee, the rewards that you’ve accumulated should exceed the amount you pay to keep the card open. If this were not the case, you would lose money.

The EXCEL Visa® credit cards can help you save with our competitive rewards rate. There are zero hidden fees and no fine-print frustrations. Our Classic Visa® and New Start Visa® credit cards come with affordable fees with worthwhile rewards. 

Annual fee cards might have a one-time charge during a specific time out of the year. This could be the date that your card was first opened, or at the beginning of the calendar year. Some credit providers might divide fees and assess them monthly. However, it is common for cards to charge the annual fee one time every year.

Annual fees are a separate charge from any interest payments that were incurred on your account. Fees are charged whether or not you carry a balance on your card. Credit card providers are legally required to disclose all fees when customers apply to open an account with them.

If your credit card provider chooses to impose a new annual fee or raise the current fee, they are required by federal law to notify you 45 days before the new annual fee becomes effective. According to the Consumer Financial Protection Bureau, customers have the option to reject the new annual fee.

Those who decide to reject the fee will have to close the account associated with that credit card. When that happens, you may want to look into opening a credit card that has zero annual fees to avoid lowering your credit score. Fortunately, the credit card options at Excel Federal Credit Union have no hidden fees or fine-print frustrations to ensure smooth transitions.

Paying an annual fee can be a great option depending on your card. If you use all the rewards that come with your credit card, they can be worthwhile decisions. If the card you want has an annual fee, decide if the benefits of the card truly outweigh paying a fee. Compare the desired card to similar cards from other providers to confirm that your investment will be worthwhile.

Some cards that charge an annual fee might waive their first year fee to attract new customers. Typically, the fee is automatically charged to your account after the first year. If you are interested in a rewards credit card but are unsure if the fee is worth opening an account, look for a card that has no fee the first year. Then you can decide if the benefits outweigh the costs.

Those who decide that the annual fee is not worthwhile after the first year can choose to close the account. Before doing so, you should:

  • Check to see if closing the account will lower your credit score
  • Redeem any rewards that you’ve accumulated in the first year
  • Check to see if your provider has a card with no annual fee

Switching to another credit card will allow you to avoid paying a fee without compromising your credit score. Downgrading your account might cost you benefits and reward redemption. However, downgrading avoids annual fees, which may make more financial sense if you were not using the rewards to begin with.

Some cards waive the fee on an annual basis if you charge a certain amount on your credit card every year. It is important to contact your credit card provider to learn about any possible annual fee waivers. You might qualify for a fee waive based on your account activity, payment history, or length of time as a customer.

Excel Federal Credit Union is committed to making its credit card experience great for its customers. Connect with us today for additional credit card information.

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