6 reasons to consider a credit card with no annual fee

Credit cards are an excellent way to build credit and get rewarded for everyday spending. Many of the “best” credit cards offer perks and benefits in exchange for annual fees that can go as high as $695 per year. Luckily, plenty of credit cards don’t charge an annual fee, so you don’t have to assess the value you’re getting every year in order to justify keeping it. 

Having a credit card with no annual fee is especially beneficial for those on a tight budget who want to maximize the rewards earned from their credit card. Many of these cards offer competitive rewards programs and perks, so you can still enjoy the benefits of using a credit card without worrying about an extra cost. 

But even if cost isn’t a concern, a no-annual-fee card can be an excellent addition to your wallet, helping you optimize your rewards strategy. Here are six reasons to consider a credit card with no annual fee.

Credit cards with no annual fee generally require a lower credit score than those with an annual fee, meaning they are easier to get approved for. This makes them more accessible to folks who may not have very good or excellent credit scores (FICO scores of 740 and greater) and, therefore, will have difficulty qualifying for a card with an annual fee. 

Additionally, many of these cards offer rewards and benefits that can help build credit, making them even more attractive to those just starting out. For instance, the Discover it® Secured Credit Card is a secured card with no annual fee that accepts applicants with bad or no credit and offers a clear path to upgrading to a standard credit card. It also offers a solid cash-back program as well as a generous welcome bonus.

Credit cards with no annual fee typically have low or 0% introductory interest rates that credit cards with annual fees don’t offer. These credit cards are an ideal choice for people who carry a balance from month to month or need a little extra time to repay existing debt. For example, the Capital One VentureOne Rewards Credit Card offers 0% intro APR on purchases and balance transfers for 18 months, then a 19.74% – 29.74% variable. That’s an incredible offer you typically won’t see from credit cards with annual fees, like the Capital One Venture Rewards Credit Card. If you’re trying to save money on interest fees, chances are you’ll get a much better introductory APR offer from a card with no annual fee. 

Many credit cards with no annual fee offer generous cashback rewards on purchases, allowing you to earn rewards while avoiding costly fees. These cards target the average person who wants to maximize everyday spending. Thus, you’ll see high rewards rates in common spending categories like grocery stores, drugstores and gas stations. No-annual-fee cards can offer exceptional value to consumers who want to maximize their cash back rewards on everyday purchases. 

One example is the Blue Cash Everyday® Card from American Express, which has no annual fee (see rates and fees) but earns 3% cash back at U.S. gas stations, U.S. supermarkets and online purchases –  up to $6,000 per year in each category, then 1%. If you were to max out each of these categories every year, you’d earn $540 in cash back. That’s amazing, considering the card has no annual fee.  Terms apply.

Meanwhile, the Blue Cash Preferred® Card from American Express has a $95 annual fee (see rates and fees) after the first year and offers 6% cash back at U.S. grocery stores (up to $6,000 per year, then 1%), 6% cash back on streaming subscriptions, 3% on transit (including rideshare, taxis, parking, tools and public transportation) and 3% at U.S. gas stations. If you were to max out the 6% U.S.supermarket cash back bonus and spend at least $6,000 on gas alone, you’d earn $540 cash back. Terms Apply.

From here, you’d have to determine whether the 6% cash back bonus on streaming and 3% cash back on transit is enough to offset the $95 annual fee. The Blue Cash Preferred may be a better fit for your spending needs, but with the Blue Cash Everyday, you don’t have to factor an annual fee into your decision to keep the card long-term

While rewards credit cards (which carry annual fees) are the gold standard, there’s one secret few will tell you: Some cash-back cards earn more valuable rewards – at least on non-bonus category spending. For example, the Citi Premier® Card has a $95 annual fee and earns 3X Citi ThankYou® Points on restaurants, gas stations, supermarkets, air travel and hotels and 1X point on everything else.

Those are perfectly generous rewards for such common spending categories, but you might be able to do better by pairing it with the no-annual-fee Citi® Double Cash Card. The card earns 2% cash back on all spending (1% when you spend and 1% when you pay it off), which can be redeemed as 2 points per dollar spent.

Credit cards with no annual fees tend to have lower spending requirements to earn the welcome bonus. Granted, these cards also have lower sign-up bonuses, but in turn, you have to spend less to get them. For example, the Citi® / AAdvantage® Platinum Select® World Elite Mastercard® has a $99 annual fee after the first year and offers 75,000 American Airlines AAdvantage^® bonus miles after making $3,500 in purchases within the first 4 months of account opening.

Meanwhile, the no-annual-fee American Airlines AAdvantage® MileUp® requires you to spend just $500 within three months to earn 10,000 miles and a $50 statement credit. If you have trouble meeting a $2,500 spending requirement, the MileUp Card might be a better fit. Not just because the welcome bonus is more attainable, but since your monthly spending is relatively low, you’ll have a harder time earning rewards with the AAdvantage Platinum Card. Rather than worrying about whether you’re getting your money’s worth from the card’s miles and benefits, you can opt for the no-annual-fee version and still earn AAdvantage miles.

While premium credit cards are great for their perks and benefits, they carry annual fees. Every year you’ll have to calculate the value you got from the various perks and points to determine whether paying the annual fee again is worth it. With no-annual-fee cards, you don’t have to do any math because keeping the account open costs you nothing. You’re coming out ahead regardless of what benefits you’re getting from it.

A credit card without an annual fee is also great for building credit. The length of your credit history and age of accounts make up 15% of your credit score, which is why having credit cards open for longer benefits your FICO score. You have more incentive to keep a credit card with no annual fee open longer since you don’t have to worry about getting your money’s worth from the annual fee. It becomes an easier decision to keep the card open long-term.

While there are many advantages to having a credit card with no annual fee, they may not be the best choice for everyone. For starters, these cards generally offer fewer rewards and benefits than cards with annual fees. You’ll also earn a lower welcome bonus than a more premium card and miss out on perks and travel benefits. In fact, most of these cards even impose foreign transaction fees of up to 3%, making them unideal for travel abroad. Lastly, no-annual-fee credit cards typically have lower spending limits than those with an annual fee, limiting your ability to make large purchases or take advantage of promotional offers.

Whether it is worth paying an annual fee on a credit card depends on your goals and spending habits. If a credit card offers rewards or benefits that outweigh the cost of the fee, then it may be worth paying. Some credit cards offer annual incentives like free night awards, airline miles or airport lounge membership that can be worth hundreds of dollars. In those cases, paying an annual fee for those perks may be worthwhile. On the other hand, if you’re not using those benefits and category bonuses, then it may not make sense to pay an annual fee.

No annual fee credit cards come in all shapes and sizes, with some offering points and miles or cash-back and others offering generous welcome bonuses or a long 0% intro APR on balance transfers and new purchases. Here are CNBC Select’s picks for the best no annual fee credit cards.

Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

For rates and fees of the Blue Cash Everyday® Card from American Express, click here.

For rates and fees of the Blue Cash Preferred® Card from American Express, click here.

For rates and fees of the Discover it® Secured Credit Card, click here.

Information about the Capital One Quicksilver Cash Rewards Credit Card, American Airlines AAdvantage® MileUp® has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.