One of the most common comparison points when choosing a new credit card is each card’s annual fee. These can range from $0 to several hundred dollars. If you’ve ever wondered why credit card companies charge annual fees or why they can vary so greatly, this post is for you. We’ll explore some credit card annual fee basics to try to help you better understand them.

Here are some facts you might want to know about credit card annual fees:

1. Annual fees generally range based on the perks or “level” of the card — a platinum credit card will have a higher annual fee in most cases than a classic credit card from the same bank or series of cards.
2. While fees charged to merchants go to credit card companies like Visa, MasterCard, and American Express, annual fees are charged by the issuing bank — a way for them to earn money whether or not you end up paying interest. Some consumers dislike the concept of annual fees because they don’t have a way to “get around” them like they can with interest rates (by taking advantage of interest free days). They feel that merchant fees should be enough, without understanding that they go to different companies. However, for those who really dislike annual fees, they can always opt for a no annual fee card like the Coles Group Source MasterCard.
3. Don’t be surprised if your credit card’s annual fee is charged right away when you accept the offer with your new approved credit card. It will most likely show up in your balance just like your purchases would.
4. When you do see your annual fee reflected in your credit card statement, pay it off immediately. Otherwise you risk forfeiting any interest free days on purchases during your next statement period. Interest free days usually depend on you having your entire balance paid in full during the previous statement period — including purchases, cash advances, balance transfers, and any fees or interest on the account.
5. Know that with rewards cards and frequent flyer credit cards the annual fee you see advertised might not be the only annual fee you pay. Sometimes this annual fee incorporates any rewards programme annual fee. For other cards, they simply advertise the credit card annual account fee as the annual fee, and when you read the fine print you’ll find another charge for access to the card’s rewards programme.

For the most part annual fees are straightforward concepts. You pay a fee each year for the privilege of using that credit card and taking advantage of its perks or rewards. Some cards offer no annual fee options because the issuing banks know it’s a good marketing strategy to attract new customers (in which case they look to earn their money in other ways). Make sure you take the annual fee facts above into consideration when choosing the best credit card for you, and remember that the annual fee is far from the only factor worth considering.