How do annual fees work

Annual fees are a separate charge from any interest payments you might incur on your account. They are charged whether or not you carry a balance on your card. Credit card issuers are legally required to disclose all annual fees when you apply to open an account.

If your credit card issuer decides to impose a new annual fee or raise the current one, they're required by federal law to notify you 45 days before the new annual fee becomes effective.

You have the option to reject the new annual fee. If you decide to reject the fee, you will have to close your credit card account. If that happens, you may want to look into opening a no-fee card in order to avoid lowering your credit score. Paying an annual fee isn't always a bad thing, especially if you use all the rewards that come with your credit card. If the card you want has an annual fee, be honest about whether the benefits of the card will outweigh the cost of the fee.

Compare your card to similar credit cards from other card issuers to confirm you're getting a good deal. Some cards that charge an annual fee may waive it in the first year in order to attract new customers. After the first year, the fee is automatically charged to your account.

If you are interested in a rewards card but unsure whether the fee is worth it, look for one with a no-fee first year to assess whether the benefits outweigh the costs.

If you decide the annual fee isn't worth it after the first year of using the card, you can close the account. Before you do, you should:. Switching to another credit card can allow you to avoid an annual fee without damaging your credit score. Downgrading your account may cost you some benefits or prevent you from earning any rewards at all. However, by downgrading, you've avoided the annual fee, which may make more financial sense if you were not using the rewards associated with it.

Some credit cards may waive the annual fee on a regular basis if you charge a certain amount on your credit card each year. Contact your credit card issuer to find out if your annual fee can be waived based on your account activity, payment history, or length of time as a customer.

Your credit card issuer will typically charge your annual fee to your billing statement automatically once a year, around the time when you initially opened an account.

This will raise your statement balance for that period. Annual fees are a premium you pay for certain card benefits. Your card issuer deems those benefits worth the annual fee, but you'll have to decide that by weighing how you use the card vs.

Bureau of Consumer Financial Protection. Accessed Oct. Head on over to our credit card hub to take a look at our range of credit cards. It's all here in one place. Eligibility applies.

Over 18s only. Want a bit more background detail about how credit cards work? In our handy guide, we run through the different types of credit cards and help you understand the basics, as well as offering you some useful tips.

If you are concerned about being unable to make your repayments on your NatWest credit card, we have lots of guidance and support to help you. Credit cards. Understanding no annual fee credit cards. On this page. What does no annual fee mean? How no annual fee cards work. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Understanding How Credit Cards Work. Credit Card Specifics.

Applying for a Credit Card. How to Use a Credit Card. How Credit Card Payments Work. Key Takeaways Credit cards sometimes charge higher annual fees in exchange for benefits, perks, and exclusive offers. It often makes sense to apply if the card offers a one-time bonus that exceeds the annual fee. Individuals with poor credit may have no other option but to use cards with annual fees, but the cost is sometimes worth it if it increases their credit scores over time.

Failing to pay balances in full or making late payments can lead to fees and interest charges that overshadow any benefits offered by the credit card company. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Articles. Rewards Cards Gold vs. Platinum Amex Card: What's the Difference? Partner Links. Related Terms Charge Card A charge card is a type of electronic payment card that charges no interest but requires that the statement balance be paid in full.