When is a lower annual interest rate better than a low annual fee?

 A lower annual interest rate can be better than a low annual fee depending on the balance you carry and how you use the credit product. The annual interest rate is what you pay for borrowing money, expressed as a percentage. The annual fee is a charge you pay for the privilege of using a credit card or loan product, regardless of how much you borrow.

Here's when a lower annual interest rate might be better:

1. Carrying a Balance: If you tend to carry a balance on your credit card from month to month, a lower interest rate is beneficial because you will pay less in interest charges over time. The savings from a lower interest rate can outweigh the cost of a higher annual fee if the balance is significant and carried for an extended period.

2. Large Amounts: For larger loans such as mortgages or car loans, even a small difference in the interest rate can result in significant savings over the life of the loan. In such cases, even if there is a somewhat higher annual fee, the amount saved through a lower interest rate can be substantial.

3. Long-Term Borrowing: If you plan to borrow money long-term, a lower interest rate is generally more important since the interest charges can accumulate to a high sum over time.

In contrast, if you don't carry a balance on your credit card or if you borrow money for a very short period, the annual fee might be a more critical factor to consider because the interest charges aren't as impactful. In such scenarios, a lower annual fee could be more economical regardless of the interest rate.