Annual Fees? Several New Credit Cards Are Opting for Monthly Ones
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Annual fees on a credit card are common and can be worth paying if you're getting something in return. Those with good credit (generally defined as FICO scores of 690 or higher) can expect rich rewards or perks in exchange for that fee, while those with poor credit (scores below 630) may get access to a credit line they wouldn't otherwise qualify for.
Monthly credit card fees, on the other hand, have long been a rarity, not to mention a red flag, primarily found on easy-to-get "fee harvester" credit cards for bad credit. That is, until recently.
Several startup financial technology companies, also known as fintechs, and at least one smaller traditional bank are now offering products with monthly fees. In some cases, the cards come with hard-to-find features, and the fee is marketed almost as a benefit — something that you'll pay instead of, say, interest or a steep security deposit.
But a nominal monthly fee is still, effectively, an annual fee, no matter how you slice it. "Three dollars and thirty-three cents that's spread across 12 months may not sound like a lot of money to people, but that can actually throw you into a tailspin if you have other things coming out of your checking account that you may not have accounted for," says Deborah Davis, an accredited financial counselor at Gryphon Fiscal Fitness.
Plus, unlike interest — avoidable if you don't carry a balance — you'll owe that monthly fee regardless, which can be easy to forget if you're not actively using the card. Also, unlike a refundable security deposit, you won't get those monthly fees back.
These products can still be worth a place in your wallet and might save you money depending on how you use them. But you'll want to weigh all of the costs and benefits of these cards over the long term.
Monthly fees in exchange for unique features
Guardrails
Several credit cards that have opted for a monthly fee structure promise features you won't find on traditional credit cards. Aside from lacking a deposit requirement or even an interest rate, many don't bother with a credit check.
The Grow Credit Mastercard — offered by the Grow Credit startup and issued by Sutton Bank — ticks the above boxes. It doesn’t allow holders to carry a balance from month to month and hence has no APR. Plus, there’s no hard inquiry on your credit reports when you apply. Rather, the card and its issuer rely on proprietary technology that uses an applicant’s income to determine creditworthiness.
The virtual card allows holders to build credit when they use it to pay for qualifying monthly subscriptions or bill payments. It offers three membership plans, each of which requires a monthly fee ranging from $3.99 (nearly $48 annually) to $12.99 (nearly $156 annually.) The card previously offered its lowest tier for free, but now that tier is only free for the first year, after which holders are charged the monthly $3.99 fee.
Another card that's incorporated a version of this model is the Super Card, which launched in 2022. It, too, has certain training wheels, such as no credit check, no minimum deposit amount and no APR. Technically, there's no annual fee either — but that comes with a big asterisk.
To get the Super Card, you'll have to become a member of the accompanying Super+ program, which has perks but also a monthly membership fee of $15. That's a cost of $180 a year, even if you never use the card. And as with the credit card from Grow Credit, the Super Card has no upgrade path to a better product from the company when you're ready.
Monthly fees can be contentious when added after the fact, especially for cards aimed at credit newbies or those with less-than-perfect credit. Complaints abounded in May and June 2023, when the credit card fintech Petal announced that some current holders of previously no-fee products would start incurring a monthly fee.
Assets as collateral
In May 2023, the company Pesto launched the , a secured credit card that allows applicants to use eligible assets such as jewelry or watches as their deposit instead of cash. The asset's value determines the amount of the card's credit limit. The card charges holders $3.33 each month ($39.96 annually).
For those who can't come up with a lump sum of cash for a deposit on a traditional secured credit card — or who can't afford to tie up that money for a lengthy period — Pesto's card can offer access to credit, often at a much lower interest rate than a pawnshop loan. But with an effective annual fee of nearly $40, cheaper options for poor credit exist, some even earning rewards.
Fees in place of interest
Even traditional credit card players are getting hip to the trend. In May 2023, TD Bank launched the TD Clear Visa Platinum Credit Card. Instead of charging interest, it requires a monthly membership fee of up to $20.
"You don't have to worry about your credit card debt compounding with this card: It is a set fee every month, not a variable equation," said Jennifer Garrett, TD Bank's head of product development and loyalty, credit cards and unsecured lending, in an email.
Such a product might indeed appeal to those who crave predictability and know that they'll be carrying a high balance from month to month. But if you're carrying a low balance, a monthly fee like this could cost you more than a traditional interest rate would. Remember, as with the Super Card, you'll owe that fee monthly, even if you just sit on the card.
Determining if a monthly fee is worth it
The monthly-fee trend looks to be accelerating. For example, new players like the Possible Card, the Ava Credit Builder Card and the Ambition Mastercard from College Ave continue to launch with features that may or may not be worth their monthly cost, depending on your circumstances and credit score range.
If you have good credit, you have a wide variety of credit card options. You can avoid cards with monthly fees.
If you have poor credit, perhaps you'll be more willing to accept a monthly fee if it means avoiding a credit check or interest rate. But even still, it might be possible to find more affordable options.
For instance, saving up for a cash deposit on a no-annual-fee secured credit card may offer more value and flexibility. Some of these products earn rewards or give you some freedom with your collateral: They may require that you put down only a portion of your credit line, let you pay your deposit in installments, or even "set your own" deposit/credit limit if you agree to open up and link a bank account.
Depending on the issuer, it may even be possible to eventually upgrade to a better (and unsecured) credit card in that issuer's portfolio and get your deposit back.
Not so with monthly fees.
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