Credit Card Annual fees—who needs them?

When browsing credit card offers on U.K. and U.S. websites, one is struck by the lack of annual fees. Competition between credit card providers has mostly done away with them, along with high interest rates and exorbitant fees for balance transfers and other services.

The good news for Australians is, the competition here is heating up, as well. New entries into the Australian credit card industry are expected to bring down both fees and rates—including annual fees, which currently run between $30 and $395.

But what does one get for the annual fees we’re paying now? Or does that fee merely serve to boost the bank’s bottom line? The answer might surprise you.

Most credit card providers offer “hidden” benefits, generally not readily noticeable but there nonetheless, which are often at least partially funded by the card’s annual fee. One good example is the complimentary international travel insurance provided by many credit cards. The cost of such a policy, if purchased separately, can be more than $450. If you’re covered in such a manner, chances are you’ve recouped your annual fee with just one overseas trip.

All major credit cards also now offer security programmes to protect cardholders against fraudulent and unauthorised transactions. Most of these programmes monitor your spending patterns, and alert you when a purchase or other card use doesn’t fit your usual picture. Also, if your card is stolen, lost, or compromised during a trip away from home, all major credit card companies will see to it a new one is delivered to you post haste.

Other popular features, such as rewards schemes, frequent flyer programmes, extended warranties on purchases, and discounts for entertainment and other amenities, also are linked to annual fees.

So even if annual fees disappear for low interest, high value credit cards, they’re likely to remain to some extent for gold, platinum, and high service credit cards. The Australian credit card industry is vibrant, evolving, and still growing—so watch for new developments!