Do you really save with a no annual fee credit card?

Whether you’re new to plastic or well seasoned, you have asked yourself: will I save by paying no annual fee on my credit card? 

Well, that all depends on your spending habits.  

According to the Mozo database, credit card annual fees range from $0 to $1,200. In some instances it may be more cost effective to pay no fee and save the amount annually. But on the other hand, it could be better to pay a fee and offset it in rewards and perks or a lower interest rate. 

The simple way to find out if you’ll actually save money with a no annual fee credit card is to determine what type of spender you are. 

How exactly? Check out this scenario … 

Credit card user types: Meet Nelly, Ben, Linda and Ray 

Nelly, Ben, Linda and Ray all have the same credit card with a 20.00% interest rate and $200 annual fee. However, each person is considering making the switch to a no annual fee credit card. 

Let’s see who would actually benefit from the change and who may be suited to something different. 

Nelly the occasional spender

• Verdict: By making the switch to a no annual fee credit card, Nelly would save $200 each year. Because she pays down her balance in full each month, she would benefit more from no annual fee than from a low interest rate or rewards option.

Ben the overspender with debt

• Verdict: While a no annual fee option may help Ben in the short term (by sparing him $200), he’d be better suited to a 0% balance transfer credit card. If he wants to clear debt quickly and save on hefty interest repayments, switching to a card with a balance transfer offer is a savvy way to do it. According to the Mozo database, these 0% offers range from 5 months to 30 months, so Ben will need to choose the term that suits him.

Linda the minimum amount repayer

• Verdict: A no annual fee credit card may save Linda a bill each year, but what she actually needs is a low interest rate credit card. Because she isn’t paying off her balance in full each month she will likely be accruing interest on her expenses. In the long run it’s more beneficial for her to fork out a small annual fee in order to receive a lower interest rate.

Ray the rewards points collector

• Verdict: Because most cards with no annual fee have minimal perks and rewards, this type of card wouldn’t be up Ray’s alley. Instead, he’ll probably get the biggest bang out of his buck by opting for a rewards credit card. While these cards often come with a high interest rate and/or annual fee, savvy spenders will use the opportunities for bonus points and accumulate where they can. 
  
  Want to start comparing credit cards today? Take a look at some options below or head over to our credit card comparison hub.