Annual fees on a credit card are common and can be worth paying if you’re getting something in return. Those with good credit (generally defined as FICO
FICO,
scores of 690 or higher) can expect rich rewards or perks in exchange for that fee, while those with poor credit (scores below 630) may get access to a credit line they wouldn’t otherwise qualify for.
Monthly credit card fees, on the other hand, have long been a rarity, not to mention a red flag, primarily found on easy-to-get “fee harvester” credit cards for bad credit. That is, until recently.
Several startup financial technology companies, also known as fintechs, and at least one smaller traditional bank are now offering products with monthly fees. In some cases, the cards come with hard-to-find features, and the fee is marketed as a benefit that’s charged instead of interest or a steep security deposit.
But a nominal monthly fee is still, effectively, an annual fee, no matter how you slice it. “Three dollars and thirty-three cents that’s spread across 12 months may not sound like a lot of money to people, but that can actually throw you into a tailspin if you have other things coming out of your checking account that you may not have accounted for,” says Deborah Davis, an accredited financial counselor at Gryphon Fiscal Fitness.
Plus, unlike interest — avoidable if you don’t carry a balance — you’ll owe that monthly fee regardless, which can be easy to forget if you’re not actively using the card. Also, unlike a refundable security deposit, you won’t get those monthly fees back.
These products can still be worth a place in your wallet and might save you money depending on how you use them. But you’ll want to weigh all of the costs and benefits of these cards over the long term.
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Monthly fees in exchange for unique features
Guardrails
Several credit cards that have opted for a monthly fee structure promise features you won’t find on traditional credit cards. Aside from lacking a deposit requirement or even an interest rate, many don’t bother with a credit check.
San Francisco-based TomoCredit has a credit card that ticks the above boxes. It doesn’t allow you to carry a balance from month to month, hence it has no APR. And there’s no hard inquiry on your credit when you apply; TomoCredit has proprietary technology that considers several other data points, like your income and account balances.
When the card launched in early 2021, it advertised no annual fee, but as of May 2023, it added a monthly fee of $2.99 (nearly $36 annually). There is currently a waitlist to apply.
“Compared to other credit [repair] products out in the market, Tomo’s monthly fee is very inexpensive,” said Kristy Kim, CEO and co-founder of TomoCredit, in an email. “We have already run a sample user test and gained positive feedback.”
Nerdy Tip: Monthly fees can be contentious when added after the fact, especially for cards aimed at credit newbies or those with less-than-perfect credit. Complaints abounded in May and June 2023, when the credit card fintech Petal announced that some current holders of previously no-fee products would start incurring a monthly fee.
Assets as collateral
The company Pesto launched a secured credit card in May 2023 that allows applicants to use eligible assets such as jewelry or watches as their deposit instead of cash. The asset’s value determines the amount of the card’s credit limit. The card charges holders $3.33 each month ($39.96 annually).
For those who can’t come up with a lump sum of cash for a deposit on a traditional secured credit card — or who can’t afford to tie up that money for a lengthy period — Pesto’s card can offer access to credit, often at a much lower interest rate than a pawnshop loan. But with an effective annual fee of nearly $40, cheaper options for poor credit exist, some even earning rewards.
Read: 3 signs your credit cards need a time-out
And as with the credit card from Tomo, Pesto’s card currently has no upgrade path to a better product from the company when you’re ready.
Fees in place of interest
Even traditional credit card players may be getting hip to the trend. TD Bank
TD,
launched a credit card in May 2023 that, instead of charging interest, requires a monthly membership fee of up to $20.
“You don’t have to worry about your credit card debt compounding with this card: It is a set fee every month, not a variable equation,” said Jennifer Garrett, TD Bank’s head of product development and loyalty, credit cards and unsecured lending, in an email.
Such a product might indeed appeal to those who crave predictability and know that they’ll be carrying a high balance from month to month. But if you’re carrying a low balance, a monthly fee like this could cost you more than a traditional interest rate would. Remember, you’ll owe that fee monthly, even if you never use the card.
Also on MarketWatch: Struggling to pay your medical bills? Be careful if you’re offered a ‘medical credit card.’
Determining if a monthly fee is worth it
The monthly-fee trend looks to be accelerating. New players like the Possible Card — slowly being rolled out to the public as an unsecured credit card for those with poor credit — continue to launch with features that may or may not be worth their monthly cost, depending on your circumstances and credit score range.
If you have good credit, you have a wide variety of credit card options. You can avoid cards with monthly fees.
If you have poor credit, perhaps you’ll be more willing to accept a monthly fee if you avoid a credit check or interest rate. But even still, it might be possible to find more affordable options.
For instance, saving up for a cash deposit on a no-annual-fee secured credit card may offer more value and flexibility. Some of these products earn rewards or give you some freedom with your collateral: They may require that you put down only a portion of your credit line, let you pay your deposit in installments, or even “set your own” deposit/credit limit if you agree to open up and link a bank account.
Depending on the issuer, it may even be possible to eventually upgrade to a better (and unsecured) credit card in that issuer’s portfolio and get your deposit back.
Not so with monthly fees.
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Melissa Lambarena writes for NerdWallet. Email: [email protected]. Twitter: @LissaLambarena.
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