Advantages of a credit card with no annual fees
If you only plan to use your credit card for emergencies and/or repay the balance each month, looking for low to no annual fees could be a good option. The costs associated with your card will be lower as your balance is kept to a minimum. Essentially, this is a fine option for sensible spenders.
Disadvantages of ‘no annual fee’ cards
With no annual fee credit cards, the interest rate is likely to be higher to make up for a lack of fees. Because of this, make a note of the interest-free period when choosing your card. Otherwise, you may end up paying more than you’d like in interest. Additionally, cards with no annual fees may sport fewer reward program incentives or complimentary benefits (like travel insurance).
Some lenders will offer to waive your annual fee for the life of your credit card, while others may offer this only for an introductory period (e.g. one year). Similarly, any rewards offered in return for no annual fees are often less impressive than what you may find with other cards.
Keep these things in mind if you are looking for a good ‘return on investment’ for your spending.
Common credit card fees and how to avoid them
You may not have to pay an annual fee, but that doesn’t mean you’ll owe zero fees. Here are some of the more common credit card fees and surcharges you may encounter, and how to avoid them.
- Purchase interest. While not a ‘fee’ strictly speaking, interest can quickly become a financial burden if you’re not careful. The interest you owe is charged as a percentage of new purchases, as a ‘fee’ for borrowing from your lender. To avoid this, choose a card with an interest-free period, and pay off your balance before this period ends.
- Cash advance interest. When you withdraw money from an ATM, or draw a cheque on credit, you’ll be charged interest immediately on the amount taken out. If you’d like to avoid this, use alternative means to get cash (e.g. use a transaction account or debit card).
- Balance transfer interest and fees. Moving your outstanding balance from one card to another may incur interest as well as an administration fee. 0% interest and $0 fee balance transfer cards do exist, and can be a sensible option when tackling debt.
- Foreign transaction fees. Do you plan to use your card while travelling overseas? You may end up owing a percentage of what you paid in foreign transaction fees. You may also owe fees when using overseas ATMs. There are many ways to avoid this, ranging from using cash to pay for things, or taking out a travel money card before you depart Australia.
- Dishonour fee. This fee is charged when you don’t have the credit (or available funds on a charge card) to fulfil a payment. For example, you have a direct debit set up, but you reach your limit. You may incur a fee if the direct debit tries to take money from the account and fails. Always ensure you have enough credit or cash available to meet your payments.
- Late payment fee. If you pay off your credit card late, you’ll likely incur a fee. Consider a direct debit if you often miss the deadline for paying bills on time, or pay the balance off in smaller increments throughout the month.
- Over the limit fee. When you exceed your credit limit, you could be charged a fee (although some providers may just prevent you from making any further purchases).
- Additional statement fee. A fee you may owe if you ask for an additional statement of your account and balance.
- Paper statement fee. If you choose paper statements over online ones, certain lenders charge a fee.
- Non-bank ATM fee. Withdrawing money from an ATM that your bank doesn’t have an agreement with (or own) could result in an additional fee.
- Chargeback fee. A fee to reverse a charge made on your card.
- Card replacement fee. A fee owed if you ask your lender for a new or replacement card.
- Additional cardholder fee. A fee for adding another person to your account.