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Published June 29, 2021
Updated July 15, 2021

An Introduction to No Annual Fee Credit Cards

A credit card’s annual fee typically pays for the rewards it offers. However, many no annual fee credit cards still offer great perks.

No credit card comes without a cost. After all, you have to pay back the money you charge to it— with interest if you don’t pay your balance in full each month— not to mention the many different account and transaction fees that most credit cards impose. A no-fee credit card simply means you don’t have to pay a requisite annual fee on top of that just for the privilege of having the card in your pocket.

This may seem like a relatively small victory in the grand scheme of things, but if you take a closer look, you’ll find annual fees aren’t always that small. Take, for example, the $699 annual fee for the American Express Platinum. Ouch!

So a no-fee credit card — a credit card with no annual fee — can be an excellent way to save money, especially if you know which one to choose.

How no-fee credit cards work

Credit cards that have an annual fee usually carry a number of rewards and often come with a sign-up bonus in the form of redeemable points or cash back when you spend a certain amount in the first few months of having the card. The annual fee pays for those rewards and that sign-up bonus.

But that doesn’t mean no-fee credit cards have absolutely no perks or rewards beyond saving money on a yearly basis. For example, there are many cash back card options in Canada with no annual fee, such as American Express SimplyCash, The Tangerine Money-Back Credit Card and the BMO CashBack Mastercard.

Rewards cards with no annual fee are available as well. For example, the MBNA Rewards Platinum Plus Mastercard offers flexible rewards that can be redeemed for travel, cash back, a statement credit, gift cards and brand-name merchandise. In contrast, the Best Western Rewards Mastercard from MBNA offers points that can be redeemed for dining and hotel rewards.

It would be logical to think that no-fee cards make up the cost of these rewards by charging more in interest or other fees, but interest rates are pretty standard on these cards at 19.99%. Outside of the lack of annual fees, these no-fee cards operate the way any standard credit card would.

As such, you must meet all the standard Canadian residency, age of majority, annual income and credit score requirements that apply for other types of credit cards.

» MORE: How to apply for a credit card and get approved

How to choose a no-fee credit card

When choosing a no-fee credit card, be aware of all the other charges applicable under various circumstances. These can include foreign transaction fees, late payment fees, over-limit fees, account inactivity fees and cash advance fees. In addition, find out what the annual interest rate is on purchases, balance transfers and cash advances.

If you have trouble paying down your credit card, it’s best to combine a no annual fee card with a low interest rate card. A good option would be the MBNA True Line Mastercard, which has no annual fee and has a comparatively low 12.99% APR on purchases and balance transfers.

If you’re a rewards person who wants to benefit from your credit card, probably the best option is the MBNA Rewards Platinum Plus credit card, simply for its flexibility. You don’t have to choose between cash back, travel, statement credit, merchandise and gift cards because the MBNA Rewards program allows you to redeem for all that.

»DISCOVER: How do loyalty programs work?

Furthermore, you get 5,000 MBNA Reward Points when you spend $500 in the first 90 days of having the card and another 5,000 when you go paperless and sign-up for e-statements. As for the earn rate, you get four points per dollar for every eligible gas, grocery and restaurant purchase in the first 90 days and two points per dollar on those purchases after that (capped at $5,000 in annual purchases per category). You also get one point per dollar on all other eligible purchases.

Of course, some credit cards have annual benefits that are so good, such as an annual travel credit or access to various perks like events and exclusive discounts at popular retailers. Their value far outstrips the high annual fees they carry. However, with no annual fee, you don’t even have to make this calculation.

» MORE: How many credit cards should I have?

The pros and cons of no-fee credit cards

Pros

  • Saves money
  • No need to justify keeping the card because it’s free to have in your wallet
  • You can still get rewards or cash back

Cons

  • Smaller sign-up bonus
  • Not as generous as other credit cards when they do have rewards
  • Limited options; there may not be a no-fee version of the card you want

About the Author

Aaron Broverman
Aaron Broverman

Aaron Broverman has been a personal finance journalist for over a decade. His work has appeared on such outlets as Yahoo Finance Canada, Bankrate and Creditcards.com, Money Under 30, Wealth Rocket, CBC.ca and Greedyrates.ca. This former Toronto transplant via Vancouver now lives in Waterloo with his wife and son. When he’s not writing about your money and how to use it, you’ll find his nose in a comic book relating to the work life balance of Spider-Man and the clumsy brute strength of The Hulk.

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