What to Know About Applying for a No-Annual-Fee Credit Card
Published July 03, 2017 Markets
Fees play a key role in meeting or beating long-term personal financial goals. It's so significant in investing, because high fees can mean several hundred thousand dollars less money over multi-decade periods as charges eat away at returns.
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No less important in the grand scheme of your personal finances, credit card fees can wipe out the advantages cardholders receive for rewards and other perks. These are a few reasons why The Motley Fool's credit card ratings are biased toward no- and low-annual-fee credit cards.
In the video segment below, credit card analysts Nathan Hamilton and Michael Douglass focus on annual fees, and what you should know before applying for a new fee-savvy credit card.
5 Simple Tips to Skyrocket Your Credit Score Over 800!
Douglass: James had a question, "What's a good no annual fee credit card?" James, we'll give you some sense of general things to look for, and you can apply those to what makes sense for you. Obviously, one of the first questions is, are you carrying debt or not?
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Hamilton: That's the first question, because if you are, then balance transfer cards probably make sense. If you aren't, and rewards are the most important, I would personally pick cash back, just because I don't place as much importance on travel, I don't have a huge travel budget to earn those rewards. But, there are no annual fee cards that apply to each category that are very good cards that have best-in-class offers out there. So, I would look online. You can plug in any information on Google and search "no annual fee credit cards." We actually have lists of no annual fee credit cards.
Hamilton: Yeah, fool.com/creditcards, you'll find some various lists. Included in those ranked lists are a bunch of no annual fee cards, which, if you look at our ratings criteria and our view, it biases toward no and low annual fee solutions.
Douglass: A few other things to think about when you're evaluating those: you often want to see if you can get a bonus $150 or more with your sign up, if possible. That's usually a good sign.
Hamilton: Yeah. You can get a no annual fee card $150-200 sign-up bonus, and the requirements are generally to spend around $1,000 within a three-month period, which for many people is doable.
Douglass: Yeah it's not bad. So, a lot of good stuff there. Check it out. Fool.com/creditcards.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Nathan Hamilton owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.
How Credit Card Inactivity Impacts Your Credit Scores
It’s strange, but from time to time, I get a small pop in the volume of the same question. It happened to me last week. I was asked four times on the same day about the impact of credit card account inactivity on your credit reports and credit scores.
What this probably means is someone with a much more visible profile made some statement on TV or radio and their answer wasn’t believable enough.
So let’s tackle the question at hand: how does credit card inactivity impact your credit?
The knee-jerk answer is, “it doesn’t”, but that leaves too much meat on the bone. Account inactivity CAN have an impact on your credit, but it would be indirect.
Credit reporting is very flat, meaning your credit reports only show you a snapshot in time of what your credit history looks like. There is no chronology of balances, which means it’s hard to determine from a credit report if an account is active or inactive.
For example, if you have a credit card with a $0 balance on a current copy of your credit report, it appears that the account is inactive. The problem is that balance is from last month’s statement and the card may have been used since the last month’s statement was cut, thus the account is now “active.”
Because you can’t determine activity from a credit report, credit scoring models cannot be harmed or helped by your past usage activity. However, the credit card issuer’s reaction to your usage patterns can make its way to your credit reports and that’s where the game changes.
If you choose to stop using your credit card account, for whatever reason, the revenue generated by that card dries up ,unless that card has a balance or an annual fee. If the card has a $0 and no annual fee the card issuer depends on your usage in order to make money. No usage means no interchange fees (aka “swipe fees”). Add that to the absence of interest and annual fees and the card becomes a drag to the issuer.
In fact, if there is no usage, no balance, no interchange, and no annual fee, then the card drops below the $0 mark on the revenue curve. Credit card issuers incur a cost to maintain your account in their systems. They pay the credit bureaus for periodic credit reports and scores on you as part of their account maintenance practices and they spend time and energy trying to figure out how to get you active again.
There’s a cost to all of this, which is why you’re a “loss” while you’re inactive.
Eventually, the issuer is going to throw in the towel and close your account. Here’s where the indirect impact to your credit is going to occur. When a credit card issuer closes your account (for whatever reason) you immediately lose the value of the unused credit limit on that card. This means your infamous revolving utilization percentage could go up, and it could go up a lot.
The impact to your credit is going to vary based on a couple of variables. If you carry credit card debt on other cards, the impact could be significant. If the credit limit on the newly closed card was very high, the impact could be significant.
If the credit limit was very low (like on a retail store card) and you don’t have credit card debt elsewhere, the impact is likely to be almost meaningless.
If this is a concern for you, there’s a way to prevent all of this. All you have to do is use your credit card from time to time. Now, I’m not suggesting that you get into debt and I’m not suggesting that you use it to buy things you wouldn’t normally buy.
I’m suggesting that you buy a tank of gas or use it to pay this month’s cable bill, which are things you’re going to have to pay for anyway. This way you’re killing two birds with one stone.
By using the card, and then paying it off immediately, you’re resetting the activity clock and it isn’t costing you a penny in interest. The credit card issuer is happy because they’re making revenue from the swipe fee, which is being paid by the merchant, not by you.
Best of all, you protect your credit because the issuer isn’t likely to close your account if you use it from time to time, even on modest purchases.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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no annual fee meaning
Question : Can I buy annuities with no fees or surrender charges? Are there no load annuities like no load mutual funds? Ron in Roanoke, Virginia.
Answer : Phenomenal question Ron! The annuity industry is very late to the party when it comes to “no load” type offerings that are common in the mutual fund industry. No load can mean a few things. It can refer to no fees for buying a strategy, no fees to keep the strategy, and no fees to sell the strategy. Let’s cover all 3 as they apply to annuities, and the one annuity that covers all of these issues.
No fees to buy an annuity
Here’s where agents blur the lines when it comes to fees and commissions. All annuities build in the agent’s commissions into the annuity so that you will see 100% of your money go to work. Regardless of the type of annuity (immediate, indexed, variable, fixed, etc.), for example….if you put in $100,000, you will see $100,000 go to work. Just be aware that this doesn’t mean that the agent didn’t get paid. They did!
No fees to keep an annuity
Some agents might tell you that fixed rate annuities, or indexed annuities have no annual fees, and technically they are correct if these annuities are bought with “no extras.” However, most deferred annuities are sold with attached benefits (also called riders), which always come with an annual fee for the life of the policy. Single Premium Immediate Annuities and Longevity Annuities (aka: Deferred Income Annuities) have no annual fees, but provide little or no liquidity.
No fees to sell an annuity
Here’s where the rubber meets the road, and where the annuity confusion starts in some cases. The majority of annuities sold today are deferred annuities. With deferred annuities, there are surrender charges to get your money out of the product. For example, if the surrender charge on an annuity was 7% and your accumulation (i.e. walk away) value was $100,000……..you would receive $93,000 if you fully surrendered the policy. In my opinion, surrender charges are “fees” and should be considered when making an annuity buying decision. If you sell a deferred annuity that is past its surrender charge, then there are no fees to sell. But if you sell your 10 year deferred annuity in year 5, then you will be charged a fee to sell. Always remember, surrender charges are fees. As a caveat to this issue, Single Premium Immediate Annuities and Longevity Annuities are not “sellable” strategies and in turn have no surrender charges……but also no liquidity. If you are considering these 2 types of annuities, make sure that your money is allocated properly and you do not need to access the funds lump sum.
The ONE Annuity No Load Exception
Currently, there are NO LOAD variable annuities available that the consumer can buy direct from the carrier……and can provide pure tax deferred growth, with no surrender charges to get out. In essence, they provide full liquidity. Carriers like Ameritas, PacLife, and Jefferson National (www.jeffnat.com) offer variable annuities that have no cost to purchase, no cost to sell, and a very small monthly fees ($20 per month with Jefferson National). Vanguard, Schwab, and Fidelity also offer no load variable annuities as well. Annuity purists will point out that the internal mutual funds (aka: separate accounts) of no load variable annuities carry some costs, but these no load offerings offer full liquidity day one….which is what really sets them apart.
I hope this explanation helps, and I predict that more no load annuities will come to the marketplace in the coming years as people yearn for annuity strategies that they can implement without using an agent.
*If you have a question for Stan The Annuity Man, please send your question to [email protected] He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog every Thursday.
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Stan The Annuity Man is a nationally recognized annuity expert and annuity critic, and has been called the national consumer advocate for annuities… and a walking middle finger of annuity truth. He is a weekly RetireMentor columnist for The Wall Street Journal’s MarketWatch.com, and is the exclusive annuity contributor for About.com. His highly acclaimed book, The Annuity Stanifesto, is a top seller in its category, and is known as the go to resource for all things annuity.
Stan The Annuity Man has clients nationwide, and is considered one of the top independent annuity agents in the country. You can learn more at www.StanTheAnnuityMan.com.
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Thank you for talking up No Load Variable Annuities. I got a $30,000 bonus check in February 2007 and plunked it down with Vanguard into a lifetime Variable Annuity. At the time, I could have bought a guaranteed return of about $1,000 a year, but I chose my own portfolio and it has ALWAYS done better than the guaranteed product I could have chosen. Even in 2008 and 2009! Last year, it returned just under $1,900 and this year is tracking above $1,900. I would have pissed the money away and now I get a nice surprise at the end of the year. Truly!