How do zero annual fee credit cards work?

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Last Updated on February 14, 2024 by Nasir Hanif

There is no denying the fact that the word ‘free’ catches our eye and we are tempted to know more! On the other hand, ‘free’ also raises the question if the product or service is low in quality or has something less to offer.

But is it always true?

If you have been drawn to a new credit card because it comes with a welcome bonus and with no annual fee, then you are not alone. Credit card lenders provide attractive perks – like cashback offers, discounts on online shopping, waiver on fuel surcharge, reward points, and other benefits to entice customers to apply for a new credit card. While some credit cards come with an attached annual fee to avail of all the features of the credit card, some credit cards don’t charge any annual fee and are free for a lifetime. 

A ‘no annual fee’ credit card does not charge any yearly fee and you technically own a credit card for free.  These cards offer attractive perks, rewards that don’t expire, cashback offers, and more. For instance, IndusInd Bank offers no annual or joining fee on select credit cards. No annual fees also mean that you will not be charged every year just to use your credit card. This in turn will save thousands in annual fees every year, depending upon the type of credit card you select.

Benefits of no annual fee credit cards 

1. It lets you save money each year because you don’t pay any fee just to own a card

2. You still get all the perks, rewards and attractive cashbacks

Do note it’s not necessary to forgo all the rewards if you do not wish to pay an annual fee on your credit card. Many credit card issuers offer reward points, discounts and other benefits with no annual fees, including IndusInd Bank. Having a good credit score is only one of the prerequisites to be eligible to apply for one of these cards.

Credit cards with annual fees

Annual fee is generally tied up with high-end rewards such as travel insurance, travel rewards, miles, reward cards, etc. The annual fee helps the lender recoup the cost of benefits that credit card offers. 

Credit cards with annual fees generally offset the cost of rewards offered to customers with the annual fee. Therefore, you should thoroughly research cashback rewards on your chosen credit card to evaluate if an annual fee will outweigh them.

Wondering how credit card issuers provide all the rewards despite not charging an annual fee?

Most credit card issuers offer lucrative rewards at no annual fee because of the fees and interest they collect from other cardholders and merchants. For example, when you use your credit card at a merchant, he/she pays a fee to accept the payment. A portion of this fee goes to the credit card issuer – ranging from 1% – 3% of a purchase amount plus a fee – which is called an interchange. These interchange fees are set up by payment networks – Rupay, Mastercard or Visa and vary from country to country and card type.

While an annual fee on your credit card is worth the benefits, no-annual fee credit cards aren’t far behind as the issuer is able to offer you similar, if not more, rewards because of the facts explained above.

Whether or not you should avail of a no-annual-fee credit card depends largely on your spending habit. For instance, if you earn enough through reward points to warrant the cost of an annual fee, it will be worth your money. But if you know that you won’t be making enough purchases and use the credit card to build your credit score, buy necessary items, and pay it off at the end of each billing cycle, then it’s best to stick with the no annual cost credit card.

What does this mean for you?

  • Pay your balance in full every time to avoid paying extra in fees and interest
  • Ensure your annual rewards exceed the card’s annual fee, and if not, get a credit card with no annual fees

Apart from that, if you are interested to know about Human Skills With HR Tech then visit our Technology category.

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Sophia Anderson
Sophia Anderson is a finance writer and blogger with a passion for helping people improve their financial literacy. With over 5 years of experience in the finance industry, Sophia has worked with individuals, families, and small businesses to provide financial advice and guidance. Her expertise includes budgeting, saving, credit management, and debt reduction. Sophia is dedicated to breaking down complex financial concepts into easy-to-understand language and empowering her readers to make smart financial decisions. She is a frequent contributor to financial publications and has written extensively on topics such as personal finance, investing, and financial planning. Sophia's mission is to help people take control of their finances and achieve financial security and freedom. When she's not writing, Sophia enjoys hiking, practicing yoga, and reading personal finance books.