Should you get a no annual fee credit card.

There’s a lot to consider when choosing your next credit card. One of the biggest questions you might have is whether you should get a no annual fee credit card or one that charges?

All things being equal, you’d pay nothing to use a credit card — no one wants to pay for more than they need. But when it comes time to decide which credit card offer to take, all things usually aren’t equal.

It’s important to examine the benefits offered by each credit card and decide whether the annual fee is worth it based on your spending pattern.

Let’s illustrate the point by looking at two very popular credit cards — the Discover it and the Chase Sapphire Preferred Card. The first has no annual fee and the second has a $95 annual fee that is waived for the first year.

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Discover it Card

Discover it may be the prototypical example of a credit card with no annual fee. Not only does it skip the annual fee, it doesn’t charge a fee for going over your credit limit, for foreign transactions or even for making your first late payment.

After the 0% APR introductory offer, the interest charged is a variable rate between 11.99% and 23.99%.

Check out the benefits:

  • 0% APR for the first 14 months on both purchases and balance transfers (3% fee on each balance transfer)
  • Unlimited dollar-for-dollar match of all cashback you earn at the end of your first year
  • 5% cash back at different establishments each quarter
  • 1% cash back on all other purchases
  • Redeem your rewards in any amount and at any time
  • Rewards never expire
  • Free FICO credit score, provided monthly
  • 0% fraud liability

You can redeem your cashback bonus in a variety of ways — as a gift card or instant eCertificate from Discover it partners, as charitable donations to select charities, as a credit to your account, as a deposit into any account you designate or as payment at select merchants.

If you close out your account, or if you don’t use it for at least 18 months, the cash back rewards will automatically be credited to your account.

Chase Sapphire Preferred Card

The Chase Sapphire Preferred Card is one of the best examples of a credit card that does charge an annual fee. The annual fee is $95, but it’s waived for the first year.

There is no 0% APR offer with this card, and the APR is a variable rate between 16.99% and 23.99%.

Check out the benefits:

  • Earn 50,000 bonus points after spending $4,000 on purchases in the first three months from opening your account
  • 50,000 bonus points are good for $625 toward travel (airfare for hotels) when redeemed through Chase Ultimate Rewards
  • Earn one point per dollar spent on all other purchases
  • Earn two points for each one dollar spent for travel or dining
  • Earn up to 50,000 bonus points per year
  • Get up to 10,000 bonus points for each friend who gets the Chase Sapphire Preferred Card
  • Auto rental collision damage waiver
  • Trip cancellation and trip interruption insurance
  • 0% Fraud Liability

Since you can earn up to 50,000 points per year – redeemable for $625 in travel – you’re gaining a $625 benefit for your $95 annual fee. That’s a net benefit of $530 per year, and $625 in the first year because the annual fee is waived.

Annual fee cards have richer rewards, but you pay for them with that annual fee.

Should you get a no annual fee credit card or an annual fee credit card?

At first glance, a no annual fee credit card seems like the better deal. But it really comes down to your needs and your spending behavior.

For example, the Discover it Card is an excellent choice for a general purpose credit card. You get the 0% introductory offer with no annual fee. And you get rewards based on your spending. But other than the quarterly spending categories, where you earn 5% cash back, your cash rewards bonus is limited to 1%. Still, you can redeem your cashback bonus in almost any way you like.

The Chase Sapphire Preferred Card is better for frequent travelers who can make use of all the other benefits. You can earn up to two points for each dollar spent on travel and dining, and one point for all other purchases. Plus, the 50,000 bonus points you can earn by spending $4,000 within the first three months can be redeemed for $625 towards airfare or hotel accommodations. If you are a frequent traveler, the card is likely well worth the $95 annual fee.

Most travel credit cards are structured like the Chase Sapphire Preferred Card – they offer great travel rewards but come with an annual fee.

Julie Rains of Investing to Thrive says, “They’re worth the [annual fee] if you travel a lot, and especially if you want some upgrades. Both my husband and I have Chase Sapphire Reserve cards and I plan to apply for Global Entry this year. We get a credit from Chase for that cost. It seems like a hassle in a way but when you’re traveling, these extras can make things go smoother.”

In the end, the fee may not even be a determining factor. The annual fee charged by the Chase Sapphire Preferred Card may be more than offset by the benefits that the card provides.

The takeaway

In this exercise, we compared two specific credit cards. As you decide which card you want, it’s important you make the same comparisons to determine whether you should get a no annual fee credit card or one that charges. Not all cards, in either category, are the same, so the specifics are very important.

But one thing is certain, a no annual fee credit card isn’t automatically better than one that charges an annual fee.

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