No annual fee credit cards explained
No annual fee credit cards eliminate one cost entirely, making them attractive for budget-conscious borrowers. These cards charge no annual fee, though they typically offer higher interest rates and fewer rewards or benefits compared to paid cards.
In New Zealand, most major banks offer at least one no-fee option. These cards are ideal for people who use credit cards infrequently, pay off their balance each month, or want to keep costs low while maintaining credit access.
Which NZ banks offer no-fee credit cards?
Major NZ banks offering $0 annual fee cards include:
- ANZ: ANZ Low Fee Visa and basic Visa options
- ASB: ASB Visa and ASB Visa Lite (reduced features)
- BNZ: BNZ Visa and BNZ Visa Lite
- Kiwibank: Kiwibank Visa (standard option)
- Westpac: Westpac Visa and basic Visa options
- TSB Bank: TSB Visa (no annual fee)
- SBS Bank: SBS Visa
Availability and features vary by bank, and some banks periodically introduce or discontinue no-fee options. Always check directly with your bank for current offerings.
What you give up with no-fee cards
No-fee cards typically offer less than paid alternatives in several ways:
Higher interest rates
To offset the lost annual fee revenue, banks typically charge higher interest rates on no-fee cards. Standard no-fee cards charge 18-22% p.a., compared to 12-16% on low-rate cards and 16-20% on Airpoints cards.
No rewards or cashback
No-fee cards typically don't earn any rewards, cashback, or Airpoints. If you make significant annual spending, you're missing out on potential value.
Limited features
No-fee cards may lack features available on premium cards, such as purchase protection, extended warranty, travel insurance, or purchase price guarantees.
Shorter interest-free periods
Some banks offer shorter interest-free periods on no-fee cards (e.g., 40 days instead of 55 days), though this varies by bank and card.
When a no-fee card is the right choice
Occasional credit card users
If you use your credit card only occasionally (less than $5,000 per year), a no-fee card keeps your total costs low. The benefits of higher-rate cards don't justify the annual fee for light users.
People who pay off balances monthly
If you consistently pay off your full balance each month, the interest rate on your card is irrelevant. In this scenario, a no-fee card with zero annual cost is superior to a paid card, even if the paid card has a higher interest rate.
Credit building
If you're building or rebuilding credit, a no-fee card lets you establish a credit history without significant cost. Once your credit score improves, you can upgrade to a lower-rate or rewards card.
Short-term needs
If you need credit access temporarily (e.g., for a specific purchase or emergency), a no-fee card lets you maintain access without ongoing costs.
Comparing no-fee cards with low-fee alternatives
Sometimes a low-fee card ($50-$100 annually) is more cost-effective than a no-fee card. Here's how to compare:
- If you carry no balance: No-fee card wins ($0 cost vs. annual fee)
- If you carry a regular balance: Compare total annual cost (annual fee + interest). A low-rate card with higher annual fee may cost less overall if it saves you significantly on interest
- If you spend heavily: A rewards or Airpoints card may deliver more value than either no-fee or low-fee options
Example comparison
Assume annual spending of $20,000 with a carried balance:
- No-fee card: 20% p.a., interest cost = $4,000 (if full balance) = $4,000 total
- Low-rate card: $75 fee + 14% p.a. interest = $75 + $2,800 = $2,875 total
- Winner: Low-rate card saves $1,125 annually
Tips for using no-fee cards effectively
Pay your full balance each month
No-fee cards charge higher interest, so avoiding interest charges is even more important. Set up automatic payments to ensure you never carry an unwanted balance.
Avoid cash advances
No-fee cards typically charge cash advance fees (2-3%) plus higher interest on cash withdrawals. Avoid this expense entirely by using your bank account for cash needs.
Monitor spending limits
No-fee cards may come with lower credit limits. Monitor your limit and request increases as your financial situation improves.
Consider upgrade opportunities
As your credit score improves or your spending habits change, reassess whether a low-fee or rewards card would be more cost-effective. Some banks offer easy upgrades between card products.
Pro tip: Check your credit score before applying
You're more likely to be approved for a no-fee card if you have a fair credit score. Major banks typically approve no-fee cards for people with scores above 600. Check your credit report with Equifax or a similar service before applying.
Frequently asked questions
Will a no-fee credit card hurt my credit score?
No, having a no-fee credit card actually helps your credit score (assuming you pay on time). A credit card showing positive payment history and low utilisation is beneficial to your credit profile. The 'no fee' aspect doesn't negatively impact your score in any way.
Can I upgrade from a no-fee card to a paid card later?
Yes, most banks allow you to upgrade from a no-fee card to a low-fee, rewards, or Airpoints card once your credit score improves. Simply contact your bank to request an upgrade. This is easier than applying for a new card with a different bank.
Are there any hidden costs with no-fee cards?
No, but be aware of standard credit card costs that apply to all cards: interest charges on carried balances, cash advance fees (usually 2-3%), late payment fees, over-limit fees, and foreign exchange fees. Read your card terms to understand all applicable costs.
Should I keep a no-fee card even after upgrading to a better card?
It may be worth keeping a no-fee card to maintain a higher total credit limit and lower overall credit utilisation. Closing old accounts can slightly harm your credit score, so consider keeping the account open even if you don't use it regularly.