If you can get something either with or without a fee, why would you ever pay the fee? Unless you just enjoy throwing money away, you'd have to get something of value in return to justify the fees.
A recent survey from Discover, a major issuer of no-fee credit cards, investigated fees and their effects on credit card usage. The survey showed that consumers with no-annual-fee credit cards were twice as likely to be satisfied with their card than consumers with annual-fee cards (70% to 35%) – suggesting that consumers aren't getting a sufficient return for the fees that they pay.
Surveys typically show that between two-thirds and three-quarters of credit cards don't charge annual fees. According to the 2019 U.S. News Consumer Credit Card Fee Study, the majority of cards with fees are secured cards (64% with annual fees) and travel cards (66% with annual fees). In contrast, only 14% of cash-back rewards cards charge annual fees, as do 24% of low-interest-rate cards and 33% of all rewards cards.
Annual fees are important to card selection. Two-thirds of respondents said an annual fee factored into their card selection process, and 60% said the lack of annual fees was a very important factor in choosing a card.
We question why 100% of consumers don't take annual fees into account when selecting a card. Maybe the 35% difference in satisfaction reflects consumers who didn't even think about an annual fee when they made their choice.
Other survey results fit in with this premise. Almost one-third (32%) of respondents typically regret paying the annual fee at the one-year mark – when they either receive their bill or any first-year fee waiver expires. Thirty-seven percent have closed a credit card because of the annual fee.
Over half of consumers (54%) who are actively considering a card switch are doing so to avoid paying the annual fee – especially older consumers. Approximately two-thirds of baby boomers, 78% of pre-boomers, and 58% of Generation X members are more likely to switch cards to avoid annual fees. Less than half of millennials (46%) and post-millennials (41%) are motivated to avoid fees.
Millennials and post-millennials seem to be more content with fees, as over half of them currently have credit cards with fees. The survey doesn't address why. Do they prefer the perks they receive, or have they just not considered the alternatives as much as older generations?
While Discover's survey shows a clear preference for no-fee cards, it also shows that over one-third of Americans are satisfied with their annual-fee card. You may be one of them. We suggest evaluating your credit card in all aspects – annual percentage rate (APR), fees, rewards, perks, and the all-important customer service.
Compare your card to other options within the same credit card issuer, and with different issuers – especially if your credit score has improved since you received your card. Can you do better than the card you have now and are you getting value in return for any fees that you pay? You may be able to negotiate a better deal with your card issuer, especially if they realize you've been researching alternative cards. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
If you're getting sufficient value with your fee-based card, then stay with what works. At least you've reviewed your options and are confident in your choice.
Credit card issuers are in fierce competition for your business. If your current card issuer can't make a good case to keep their card, be ready with alternatives. Make them earn your business.
If you want more credit, check out our list of credit card offers.