When comparing two cards, should I get the one that has a smaller APR with a high annual fee, or the one with a bigger APR with a small annual fee?

By , CardRatings Contributor

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The best credit card for your situation always depends on your overall relationship with cash. Your decision really comes down to a few key factors:

  • How much of a balance you intend to carry each month.
  • How much you intend to charge on your card every year.
  • The interest you could earn by using credit instead of cash for specific purchases.
  • The rebates or perks you'll earn by running most of your expenses through a rewards credit card.

A higher annual fee with a lower annual percentage rate usually signifies a credit card with extra perks and benefits. For instance, American Express charge cards and many Visa Signature credit cards use higher than average membership fees to cover the cost of purchase protection, travel insurance, and personal concierge services. If you often cover reimbursable business expenses with your personal card, a high annual fee can pay for itself with bonus rewards, travel amenities and extra cash back.

Many no-frills accounts with lower annual fees hike their APRs to reflect the current financial climate. If your lender offers a grace period, you can use this kind of account like a charge card that you pay off in full at the end of every statement cycle. If you're just trying to build a strong credit history with little intention of carrying a balance, go for the lower fees. (After all, 21 percent of nothing is still nothing.)

When you know you'll need to carry a balance, compare the net annual cost of each account by adding up a card's annual fee and potential finance charges. Fortunately, you don't have to do all this math on your own. Our credit card payment calculator can help you estimate the real annual cost of your prospective accounts before you make a long term commitment.


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