What is an annual fee?

A credit card annual fee is the price you pay to your credit card provider each year - whether you use the card or not. Not all card providers charge annual fees. Those that do normally offer certain benefits and rewards in return (like cashback or air miles, for example).

3 min read
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How can you find out the annual fee? 

The annual fee is included in a credit card’s Annual Percentage Rate (APR). The APR tells you the total cost of borrowing. However, to find out exactly how much you’ll be charged for the annual feecheck your terms and conditions. If you’re still not sure, get in touch with your lender.  

How much is an annual fee? 

How much an annual fee will cost depends on your lender and the type of rewards or benefits that come with your card. You’re unlikely to find one for less than £25, and they can go up to £100 or more. 

What kind of rewards come with an annual fee? 

Different lenders will offer different incentives and rewards, in return for an annual fee. Here are some examples of what you might expect to get:  

Cashback on purchases 

Credit cards that offer cashback on purchases can be very tempting. This type of card pays you a certain percentage of the amount you spend each monthHowever, the best deals are usually only available to borrowers with good credit histories. 

Interest-free periods 

Some credit card providers may offer extended interest-free periods. This means you won’t have to pay any interest on your spending during an agreed time frame. Some may even offer cashback too, but these typically come with an annual fee. 

Rewards points 

Some credit card providers may reward you with points to spend at specific retailers.  Many supermarkets and high-street shops even offer their own rewards-based credit cards, as an extra incentive. 

Air miles 

These credit cards reward you with points as you spend, which you can then put towards plane tickets. They’re especially suited to people who frequently travel for business. However, you’d probably have to spend quite a lot in order to earn enough points to pay for an entire flight. 

Is it worth paying an annual fee? 

All these perks might sound very tempting, but before you apply for a rewards credit card, it’s important to do your sums. Make sure the rewards are worth more than the annual fee. If they’re not, consider getting a credit card without an annual fee. 

Regardless of rewards offers, you should never spend more than your means on a credit card. If you fail to make at least the minimum repayment each month, you’ll face late fees and damage your credit history. This can make it more difficult for you to borrow again in the future. So, it’s worth setting up a standing order or direct debit to cover at least the minimum payment each month.  

Tip: The best way to use a credit card is to only spend what you can afford to pay back each month, then clear your balance for your next statement. That way, you avoid paying any interest and you can build up a good credit history over time 

This will show lenders that you’re a responsible borrower. As a result, you may have a better chance of qualifying for more competitive credit card deals. 

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Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.

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Disclaimer: All information and links are correct at the time of publishing.