While many credit-card issuers are thinking about reintroducing annual fees, we reveal the cards which already charge them.
Last week, in Your Credit Cards Need £1 Billion, I warned Fool readers that credit-card companies are seeking ways to maintain and increase their record profits.
Thanks to rising bad debts, a growing number of canny rate tarts (who avoid paying interest on their debts), plus an Office of Fair Trading investigation into credit-card penalties, credit-card issuers have taken a few knocks this year. Hence, I expect them to come out fighting, most probably by increasing their interest rates and charges while reducing the benefits on offer to cardholders.
One option under serious consideration is the re-introduction of annual fees, which died out in the Nineties, but are poised to make a triumphant return. At the recent Moneyfacts conference, I chatted to several bankers who were giving serious thought to the idea of bringing back annual fees for some or all cardholders, especially those who always pay off their bills in full.
For the record, according to independent financial analyst Moneyfacts (which powers the Fool's search engines for credit cards, personal loans, savings accounts, etc.), these eleven credit cards already charge annual fees to all cardholders (sorted from highest to lowest annual fee):
Credit card | Annual | Interest | Notes |
|---|---|---|---|
Morgan Stanley | 275 | 57.8 | We reviewed this |
Northern Bank (NI) | 200 | 39.6 | - |
British Airways | 120 | 35.4 | - |
Northern Bank (NI) | 120 | 28.3 | - |
Co-operative Bank | 120 | 9.2 | Interest rate matches |
MBNA | 95 | 31.5 | - |
Lloyds TSB | 59.40 (£4.95 pm) | 21.2 | No fee for six months for |
Bank of Ireland | 35 | 16.9 | - |
Citi Advantage | 25 | 17.4 | No fee charged in first |
Co-operative Bank | 24 (£2 pm) | 12.3 | Charges base rate for |
Northern Rock | 24 (£2 pm) | 12.3 | Charges 4.844% for |
Note that a few other credit-card issuers charge annual fees to certain customers but not to others (notably MBNA), whereas the above cards charge an annual fee to all cardholders.
As you can see, many of the above are "premium" credit cards, which charge high annual fees in return for a package of benefits. However, I'm always wary when banks bundle products and benefits together and then sell them as a package to consumers. Banks build tidy profit margins into these bundles, so I tend to give them the old heave-ho every time.
In addition, it's worth noting that several of the above cards appear to charge extremely high rates of interest. However, this is because APRs (Annual Percentage Rates) take annual fees into account when calculating the cost of credit. In fact, most of the above cards charge below-average interest rates on purchases.
In summary, it may be worthwhile paying an annual fee in order to pay ultra-low interest rates, such as those charged by the two Co-operative Bank cards and the Northern Rock card above. However, as someone who always pays off my bill in full by direct debit every month, I prefer to use a Best Buy cashback credit card in order to earn as I spend!
More: Use the Fool to compare credit cards!