Credit Card Annual Fees, Hidden Charges and Rewards Cuts: Are You Still Getting Value?

Credit cards could be useful when it comes to making big purchases and earning potential rewards. It also helps in building a credit history, which could help in securing loans easily in the future. However, many credit cards come with additional fees, which can increase the overall cost and may lead to a debt trap.  

Some of the additional costs include annual fees, transaction fees, late payment fees, over limit fees and cash advance fees, card replacement fees, foreign transaction fees and reward redemption charges, among others.  

One of the most expensive fees is the annual membership fee, which starts from Rs 499 and can go up to Rs 5,000. Credit card issuers justify these fees for offering a joining bonus and other benefits like lounge access, fuel surcharge waivers and reward points. However, it could be beneficial only when you can avail of these perks. Otherwise, the annual fees could be an additional cost.

However, you need to evaluate whether you are recovering the annual fee value each year by either accessing the airport lounge or shopping from partner brands. Otherwise, this could be a waste of money and could put a burden on your finances.

In addition to annual fees, the credit cards are often loaded with hidden charges that you might not notice initially. So, if you have missed the due date, you may be charged Rs 100 to Rs 1,300 plus GST and the interest charges on the outstanding amount. If you have exceeded your credit limit, you may be charged 2.5% to 3% on the over-limit amount.

A late payment fee will also be applied if the minimum amount owed is not paid on time.  

In addition, a lot of credit cards permit cash advances, up to a predetermined amount. This normally entails a fee, possibly equal to 2.5% of the withdrawal amount and interest will start to accrue from the day of the transaction.

Other incentives like cashback, discounts, or reward points that can be exchanged for gift cards or other goodies could be beneficial for credit card holders. However, certain issuers may impose a nominal processing fee upon the redemption of these points.

Some banks have also reduced rewards and removed several categories from earning benefits. Earlier, utility bill payments, insurance premiums, and wallet loads earned reward points, but now, many cards exclude them. For example, HDFC Bank will now charge a 1% fee, capped at Rs 4,999 per month, on spending on online skill-based games. No reward points will be offered against such spending.

So, before opting for a credit card, make sure to evaluate all the associated fees and whether you are optimising the benefits. There is no point in taking a credit card if you are paying high annual fees but not leveraging the benefits offered in terms of rewards and discounts.