Annual Fees? Monthly Credit Card Fees Rising in Popularity – Are They Worth It?

Monthly credit card fees used to be rare, but several new credit cards from fintech startups and traditional banks are bucking that trend with regular monthly costs. Are these cards and their unique features worth it compared to free or low-cost alternatives?

Let’s break down what these monthly fees entail, who they might appeal to, and whether better options exist for your credit profile.

The Rise of Monthly Credit Card Fees

Historically, annual fees have been more common in the credit card landscape, typically charged by rewards cards and premium travel cards aimed at consumers with good credit. Monthly fees, on the other hand, were almost unheard of until recently.

In the past couple years, several fintech firms have introduced credit cards with monthly fees in the $2 to $20 range (or $24 to $240 per year). Traditional banks have started testing out this model as well.

Unique Features, But at What Cost?

Many of these new credit cards advertise unique features you won’t find with free starter or secured cards:

No credit check when applying
No security deposit requirement
No interest charges – the fee replaces interest
Accessible to those with poor or limited credit histories

The companies pushing monthly-fee cards argue these features make the cards worthwhile, especially for credit beginners. But consumer advocates counter that even small monthly fees add up over time.

“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.

Let’s analyze whether these cards provide enough benefit given their fees.

Monthly Fee Cards With Training Wheels

Several new credit cards target those with little or no credit history by providing “training wheels” – guardrails and features meant to help beginners avoid debt pitfalls. But these helpful features come at a cost in the form of monthly fees.

TomoCredit Card

$2.99 monthly fee ($36 annually)
No interest charges – must pay balance in full each month
No hard credit check when applying

TomoCredit uses alternative data like your income rather than your credit score to approve applicants. While helpful for those with limited credit history, the card lacks an upgrade path to a regular rewards card when your score improves.

The monthly fee may be worthwhile if you need to establish credit history, but free secured card alternatives exist as well.

Super Card

$15 monthly fee for required Super+ membership ($180 annually)
No credit check, interest charges, or security deposit
Also lacks an upgrade path for credit building

At $180 per year, this is among the most expensive of the monthly fee cards. The high fee likely limits the Super Card’s appeal to those who can’t afford alternatives to establish credit history.

Alternative Secured Cards

Rather than paying repeated monthly fees, those with no credit or poor scores have some options that enable credit building without high costs:

Secured Cards

Require refundable security deposit instead of monthly fees
Deposits often as low as $200
Chance to upgrade to unsecured card later
Some options have no annual fee

Saving up a deposit gives more flexibility than monthly fees you’ll never get back. Secured card upgrades also provide a path to prime credit over time.

Assets as Collateral

One secured card from financial services provider Pesto accepts assets like luxury watches and jewelry instead of cash deposits while still charging a $3.33 monthly fee ($39.96 annually).

This may beat pawn shops for short-term credit access if you have valuable assets on hand. Yet cheaper secured credit cards are still available if you have any cash to spare for a deposit.

Replacing Interest with Fees

In another approach, the new TD Clear Visa card charges $10 or $20 monthly instead of interest on balances. This card appeals to those who:

Regularly carry high, long-term balances
Want to avoid compounding interest charges

However, if you pay in full each month, that monthly fee is wasted money compared to a free card with a typical 18% interest rate.

Is It Worth It – Weigh Up the Overall Costs

The affordability of monthly fee credit cards depends greatly on your personal situation. While these unique new products serve some purposes, in many cases, free or lower-cost alternatives are available.

Ask yourself these questions when facing monthly fees:

What’s my total annual cost? Fees in the $3 to $20 per month range add up.
Could a secured card with deposit serve me better over time? Having an upgrade path matters.
Do I routinely carry a balance? If not, fees are wasted money versus potential interest charges.
How might small, predictable fees affect my budget? Forget a small monthly bill, risk future headaches.

Review all your options thoroughly before embracing recurring credit card costs. While innovation always merits attention, the old standbys like secured cards remain useful for credit building at low cost over the long haul.

The temptation of quick access and unique features should be weighed carefully against availability of alternatives more cost appropriate for your habits and means. A small leak in monthly fees can quickly flood your financial boat over time.

Conclusion

Monthly fees on credit cards were once quite rare but are rising in popularity among new fintech credit card providers and traditional banks.

These fees can provide access to credit-building tools for people with limited credit histories, yet frequently lack upgrade paths for further growth. While helpful and convenient features may come bundled with monthly fees up to $20.

However, secured credit cards and starter cards present low or no-cost means to achieve similar ends for disciplined users over time.

Evaluating one’s exact needs and financial behaviors remains vital when determining if innovative new offerings can improve one’s position or unnecessary costs may result. The lure of the new must be balanced with time-tested frugality where possible.

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