Credit cards have many different ways of making a profit for the bank. Some make it all on interest, while others make it up on a combination of interest and fees. There are a few new fees that are becoming more common, one of which is the monthly service fee on smaller credit cards.
How monthly service fees work
Monthly service fees are assessed on your credit card for each month it is kept open. Generally, this fee is charged only after an introductory period – most offer at least one year without fees – while others begin charging the fee immediately. Other companies bill for a full year upfront, adding the fees to your credit card bill from the very start.
You do not have to pay monthly service fees to get a credit card. In fact, most credit cards do not have a monthly service fee. There are only a few cards that do:
- Prepaid credit cards – Prepaid credit cards have service charges because the cards act more as bank accounts than credit card accounts. Consider switching to a normal checking account in order to avoid monthly service charges for a prepaid account.
- Starter cards – Starter credit cards are intended for people who have low credit scores – usually a bankruptcy, or worse – and low income. These can be a very expensive way to build credit. While they work just fine, one should instead look for a secured credit card, which will not carry a monthly service fee and will still help the credit card owner to build a better credit score.
All fees are negotiable. As with any personal finance product, be sure to shop around for products that come at the lowest price. There are quite a few credit cards that come at the very low price of free; start with those cards first before moving onto fee-laden cards.