How to Choose the Best No Annual Fee Credit Card

Many Canadians feel the pressure of increased costs of living — and if you’re looking for ways to trim your expenses, you’re not alone. Using a no annual fee credit card can be one way to streamline your budget, allowing you to save on annual fees but still keep a credit card on hand for purchases. 

However, a no annual fee credit card may not be the best fit for everyone, especially if you want to maximize perks and rewards for using your card. Here’s how to determine if a no annual fee credit card may work for you, and how to select a card that fits your needs.

What are the benefits of a no annual fee credit card?  

Let’s start with the obvious: A no annual fee credit card allows you to save money on annual fees. You’ll still have the purchasing power of a premium credit card, including the ability to make purchases and take out cash advances, without having to pay a fee each year. Higher-end credit card fees can top out at $100 a year or more, making no annual fee cards a significant savings if you’re on a budget.

No annual fee credit cards also tend to be easier to access than premium credit cards, which may have minimum income requirements or only be available to consumers with a long credit history. 

Some no annual fee credit cards also allow you to earn rewards for using the card. While these rewards are typically significantly less than you’d earn with a premium card, they’ll still allow you to earn some perks for using your credit card. 

As a result, a no annual fee card may be the right choice for you if:   

• You’re on a tight budget and wish to minimize credit card fees 

• You don’t qualify for premium credit cards 

• You’re not too concerned about maximizing rewards from using your card.  

• You’re new to credit but still building your credit history    

Are there any other fees associated with a no annual fee credit card? 

While you won’t pay an annual fee on the card, the card may still come with other fees, such as overlimit fees. When you apply for a credit card, make sure you understand all the fees associated with the card to make an informed decision.     

What types of no annual fee credit cards are available?  

The types of cards available to you may vary across financial institutions. But there are two types of cards you’re likely to come across.

Cash back no annual fee credit cards

Like the name suggests, cash back no annual fee credit cards allow you to earn back a percentage of the money you spend using the card. The percentage varies from card to card — though no annual fee credit cards typically offer less cash back than premium cards — and may vary depending on where you use the card. Some credit cards offer additional cash back for spending at certain retail locations, for example, or spending money on gas. 

Rewards no annual fee credit cards

Rewards cards allow you to earn points for using your credit card which you can redeem for merchandise or other rewards. You may be able to apply points to cover a major purchase, such as a new TV or laptop. And some card issuers may allow you to redeem rewards to pay down your balance or even save for retirement. 

What about travel rewards cards?

Travel rewards cards tailor their offerings around travel perks, such as the ability to earn miles/points you can redeem for flights and hotel bookings. There are some no fee travel cards in the market, but many with these benefits come with an annual fee. But if you’re a student, you may qualify for a rebate that would cover the annual fee.   

Are there any drawbacks to a no annual fee credit card?  

While the card works like any other card, it may lack the features and benefits of premium or luxury credit cards. You’ll generally earn fewer rewards per dollar you spend. And you may not have access to certain perks — such as travel or medical insurance — that may be available with a premium credit card. 

If you plan to use the card a lot, or you want to maximize rewards over the long term, consider taking out a no annual fee credit card to start building your credit history, with the goal to upgrade to a premium card once you qualify for one. 

How to find the right no annual fee credit card for you  

Three steps to find a card that meets your needs. 

1.    Understand all the rates and fees of the card

Even if a card has no annual fee, there could be other fees and interest rates associated with it. It’s important to consider all potential costs to ensure the card fits your budget. For instance, if you carry a balance month to month, you’ll be charged interest on your purchases. Additionally, depending on how you use the card, you might encounter other fees, such as an overlimit fee for exceeding your credit limit.

2. Consider the rewards

Next, take a look at the rewards you can earn on each card to select one that fits your financial goals. If you’re saving for a big-ticket item, for example, a credit card that allows you to earn points toward that purchase may be the best fit. If you’re looking to add some breathing room to your budget, on the other hand, a cash back card might suit your goals.  

Pro tip: If travel is top of mind, consider upgrading to a travel rewards card once you can qualify for one. Depending on the financial institution, you may be able to transfer your rewards to your next card. 

3. Apply for your card

Anyone can apply for a credit card in-branch, and you may have the option to apply online, as well. Before you start your application, gather the information and documents you need. These can vary from card to card, but may include your: 

• Full name, address and phone number 

• Employment history, if available 

• Proof of Canadian citizenship or residency.  

The good news? Applying for a credit card takes only a few minutes, and you may be able to find out if you’re approved on the spot. 

Find the right credit card for you

Check out our Credit Card Selection Tool to compare cards to find the right fit for you — and start the application process.