Avoiding Credit Card Annual Fees
December 16, 2008 | Filed under Money
Credit cards often charge you an annual fee. This is despite the fact that they gain most of their revenue from merchant fees, e.g. every time you swipe your Visa at the supermarket, the supermarket pays about 1% in merchant fees to Visa. My mother objects to this annual fee on moral grounds (why should the customer be penalised for encouraging industry?) so she’s patented a system that allows her to skip paying annual fees every year, while gaining all the benefits of owning a credit card.
There’s one thing you need to know about credit card companies: They want to keep you on board for as long as possible, no matter what happens. The more you spend using their card, the more revenue they receive from merchants. So, every year, eleven months into her credit card contract, my mother will call up Visa and tell the customer service representative that she wants to cancel her card. Once you ask to cancel your account, they’ll do everything they can to convince you to keep it.
My mother explains to them that the only reason she wants to cancel her account is because she has several credit cards (she doesn’t, really), and she doesn’t see the point in paying several different lots of account fees. So to keep her as a customer, they’ll always cancel the account fees for the next year…and so the cycle goes on again. If you actually calculate it, our family makes money from owning a credit card, rather than spending money. Consider the following:
- We never have annual fees
- Our credit card allows us special credit – e.g. Every month, we get up to $10AUD credit on the account. If we spend $500AUD, we’ll get $5 credit. If we spend $750AUD, we’ll get $7.50AUD credit. If we spend $1000AUD, we get $10AUD credit.
As a family, we normally do go over the $1000AUD threshold (we swipe 98% of everything we pay for, as I have a supplementary card on the same account that I pay my mother back for), so we’re earning $10AUD every month, essentially giving us $120AUD worth of “free money” every year – or the equivalent of two weeks worth of petrol. The only thing we don’t get with our credit card is the ability to accumulate points to redeem for items (e.g. movie tickets, flight credits), but the point is somewhat redundant when you consider the positives.
It might seem slightly dishonest, but think about it from a consumer viewpoint, rather than an industry viewpoint. They might not be getting $40AUD from our annual account fees, but they’re still getting the $150AUD from merchant fees from our purchases. It’s a win-win situation for both parties – they’re still earning money ($30AUD a year after you subtract our yearly $120AUD credit), and we’re not paying unnecessary fees. I see nothing for either party to complain about – the only ones who can really legitimately complain are the merchants who are paying for the every small transaction.
14 Responses to Avoiding Credit Card Annual Fees
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…Wait, your credit card has…fees?
I think my parents must have been using credit that don’t do this for all my life, because I had no idea that credit cards charged fees beyond interest, and that’s only if you don’t pay on time.
My entire family has L.L. Bean rewards, so we get tons of L.L. Bean merch with free shipping every year. It’s pretty fantastic.
Reply: Most Australia-based credit cards do have annual account keeping fees. They’re usually waived in the first year to draw you in, but after that, depending on the card, it’s anywhere between $20 a year to $200 a year…on top of any interest on late payments, etc.
Leila on December 16, 2008 #
And customer support hasn’t caught on to this yet? I thought they recorded all the complaints in some sort of database. XD Admittedly, a year is quite a while so they might have new people, or people forgot… Crafty folks, you are!
American Express does the points thing, but my mom prefers the cash instead–you get more for the money that you originally spent.
TWD on December 16, 2008 #
Oh, I wish I had the guts to do that! I hate that stupid fee.
Mari on December 17, 2008 #
My credit card only has fees if you haven’t used it for anything in a year. Like that’ll ever happen. Good way to avoid the fees though, and I definitely see it from your side. Though even better would be someone who doesn’t have a rewards program who sees this and gets rid of the fee.
Stephanie on December 17, 2008 #
small businesses everywhere hate you Amanda, hahaha.
my old boss used to get so angry when people used a card to pay for anything under a certain amount ($7 I think). It would cost her bakery more to pay the fee than they would make on the purchase.
Jennifer on December 17, 2008 #
I’ve seriously considered doing this. My card doesn’t have annual fees or anything, but I’m sort of tempted to cancel it anyway unless they stop mailing my payment ticket a week before I have to pay it. I mean, I could pay online but the point is, they’re short-cycling me! I’m tempted to call up to say I’m going to cancel just to see if they’ll cut it out.
Rebee on December 17, 2008 #
Whoa, I never realized any of this. I live in a bubble. However, I don’t own a credit card – only a debit card. I like to have the money for things when I purchase them.
Caity on December 17, 2008 #
Aha, brilliance!
I’m going to need to do this when I credit card I actually have to pay fees for.
Shen-Shen on December 17, 2008 #
Like Leila, I wasn’t aware that credit cards actually charge account fees. I thought they made most of their money off late payment charges and interest!
My parents always get good deals when they threaten to cancel some sort of account :P
Kaylee on December 17, 2008 #
Oh wow! Your mom is very clever. Thanks for sharing this… I wonder what credit card companies would think if a lot more people started doing this…. :D
Kycoo on December 17, 2008 #
Processing fees around here normally average 2-3%+ (a bit less for debit cards) and twenty to fifty cents per transaction. *And* there’s a minimum in fees the business has to pay each month so they’re getting at least $25-50 from each business. Not to mention all of the interest, late payment, and over the limit fees collected from other card-holders.
The company should have canceled the annual fees permanently the first time asked. I think they probably still would. It doesn’t really hurt to find out.
Renee on December 17, 2008 #
I think that’s one thing I’ve always avoided when going with a credit card; I refuse to pay for an annual fee, and some of them require you to pay that annual fee upfront prior to getting your new card.
I think majority of them have just offered reward points rather than percentage of cash. The only card I have that does reward with 1% cashback is my Paypal card, and even then it’s a debit and not their credit one. It’s still nice to see some money coming back from my purchases.
Jordan on December 18, 2008 #
Over here we have annual fees for credit cards as well, but they usually waive it for the first and second year. After that, if you have been diligent in paying your bills and stuff, there is a possibility of negotiating another few years of no annual fee with the bank :)
Wendy on December 18, 2008 #
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