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| When fees are better |
| Arnav Pandya / Mumbai Nov 22, 2009, 00:00 IST |
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While annual cards are costlier than normal lifetime free cards, they have many additional benefits.
The credit card market has a lot of offers for different customers, so it often becomes difficult to choose between the options offered by a large number of players. Such a situation results in a lot of cost saving, as intense competition inevitably results in a situation where a similar feature is available at a lower cost. One of the best things that have happened in recent times is the lifetime free card, whereby there are no annual fees for the entire life of the card. For a person who is regular in their payments this means that they can use money for free. At the same time, cards with an annual fee have their own position and these need a closer look.
ANNUAL FEES
The annual fees are the yearly fees charged by the card-issuing bank to the customer. These are meant for the card's use during the year. A service tax has to be paid on these fees which will raise the cost for the user by another 10.3 per cent. Match the extra cost against the extra benefits received. When the card holder has paid annual fees, there is also an element of comfort, because one can be sure the bank will ensure there are adequate facilities provided to retain the holder as a customer. Here are some of the areas and the benefits that will be available on such cards.
HIGHER LIMIT
Every credit card holder wants to ensure an adequate credit limit on the card. This is especially required when there is a foreign trip to be made or a large expense that has to be paid using the card. Cards with an annual fee will often have a higher credit limit than a normal lifetime free card because the bank has the necessary amount of confidence in the customer that they have selected to serve. There is often a restriction on the credit limit provided in the case of free lifetime cards because the bank would not like to have a higher risk element present here. The higher limit can be a boon not only in terms of the increased spend that can be made but this also translates into a higher cash limit that can be used in case of emergencies to effectively get cash. For example, a trip for two to the US can involve costs of Rs 1.5 lakh in tickets, including internal air travel, and a card with an annual fee with a limit of Rs 1.75 lakh can be useful for booking.
ADDITIONAL FACILITIES
A lot of the cards that have annual fees fall in the premium category and these then enable the user to enjoy additional facilities that might not be available on a normal lifetime-free card. These facilities and features are not regular expenses or happenings but are usually meant for those who have a certain kind of lifestyle.
This will include subscription to specific journals or free tickets to a play or even passes to attend specific events like wine tasting. The monetary value of such facilities is often difficult to quantify because the value depends upon the interest of the card user and the family members in such areas. While some of these facilities are made available without any notice, there are others that are a basic part of the credit card offer.
HIGHER POINTS
The cards that have annual fees also differ in one other respect. In many cases, there are higher points available for spends made using the card. This means that while a normal card might give the user 1 point for every Rs 100 spent, a card with annual fees might provide two or three points for every Rs 100 spent. Again, this feature is not present on every card because many cards provide benefits on the redemption front.
There is also some variation in the nature of the benefits at the time of redemption of the reward points. This could mean a lesser number of points required for the purpose of redeeming the points to get a specific gift. For example, a Rs 500 voucher of a retail store might be available for 1,000 points for such a category, while others would have to fork out 1,250 points. In some cases there are also exclusive items available only for this category of users. The writer is a certified financial planner
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