We all use credit cards these days and most of them usually do NOT carry any annual fees. This off course is taking a hit on the bank’s earning potential with each issued credit card. Since, India has seen a vast economical growth in past decade, most banks capitalized on this growth and had issued cards with no annual fees to maximum number of people.
But banks are changing the terms and conditions slowly and adding the clause of annual fees to keep and use the cards. The benefits and discounts from NO annual fees cards are slowly vanishing.
We are going to talk about the comparative benefits and situations in which you should opt for paid (annual fees) credit cards:
- The entry discount is good enough to by-pass annual fees:If the sign up bonus or discount that your card is offering you is greater than at least two year’s annual fees, you should consider going for the card.For example, if the annual fees is INR 1000 and the card offers a one time sign up discount coupon of an equal amount, then this deal is NOT worth going for.
On the other hand, if they offer you something worth INR 2500 as a new member discount, then you should consider enrolling for the card even though it has an annual fees of INR 1000. In this case, the credit card company is giving you back the 2.5 year’s annual fees in advance and hence sounds like a good deal!!
- You can earn far more cash back on your transactions than the annual fees: Some credit cards companies offer cards that carry 5% cash back on fuel and utility bills always i.e. it is NOT restricted to 2 or 3 transactions per month. We all normally need fuel and pay our utility bills.So, on a conservatuive note, if you get INR 300 per month as cash back on all transactions every month, it makes sense to even pay out INR 1000 as annual fees and get this card. The cash back of INR 300 can easily be achieved by making transactions worth INR 6,000 for purchasing fuel and paying for bills.
The net benefit would be :
Total Saving 3600 (300*12) – Annual fees 1000 net Benefit 2600
But, do read the terms and conditions of the credit card as it has been observed that banks do put a maximum limit on the cash back amount that you can get in a single month (billing cycle). Also, they don’t extend you the cash back offer if you default on any of the payments. So, keep making payments on time to keep receiving the goodies.
- Offers a longer 0% interest rate period on balance transfers: There are times when you have a good amount of debt on one of the credit card and do NOT have sufficient funds to pay it off . You are bearing high rate of interest on this card. In this scenario, you can consider taking up a new credit card if it offers a good 3-4 months of 0% balance transfer facility even if they have annual fees.
You will definitely be able to save more on your interest that will out-weigh the annual fees.Example:
Amount Interest (for 3 months) Interest rate Current card 30,000 2,700 3% per month (36% per annum) New card with balance transfer 30,000 0 0% for first 3 months Net benefit in 3 months 1,700 (2,200 – 1,000)
So, you can clearly see that if you use the balance transfer facility of your new card, you can save INR 1,700 even after paying the annual fees of INR 1,000.
- The only card you can get approved for has an annual fee: Well, it may sound stupid but it does happen. There are people who have bad credit history as they have defaulted on loan payments or credit card payments earlier. Banks may not be eager to offer them NO Fees credit cards. In that case, they may only be left with options of paid cards with even lesser discounts than normal. If you are one of them, I would say that opt for a paid card only if it is absolutely necessary.
Comments and suggestions are most welcome.