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Security funds vs. annual fees.

Security funds and annual fees are both common when you open a credit card. They’re easily confused but are actually quite different. You could have one or the other, both or even neither depending on your card and credit history. Let’s unpack the differences.

What are security funds?

Security funds are what you pay up front when you first open a secured credit card account. Like collateral, this gives the credit card issuer some assurance that you’ll pay off your debts. In exchange, you get a credit card and the chance to build credit and improve your credit score.

Security funds are usually required if you have no credit history or even poor credit – they’re just another way to show that you’re serious about using your card responsibly.

What’s an annual fee?

This one’s pretty straightforward – you pay an annual fee for using your card and all the benefits that come with it. Not all cards have an annual fee. Shop around to figure out if a no-fee card covers everything you’re looking for or if paying an annual fee is worth it for you.

How often do I have to pay?

Security funds are typically a one-time thing. You submit the required amount when you first open your card and that’s it! Some cards give you the option to submit more funds to increase your credit limit, but only the initial amount is the mandatory payment.

It probably comes as no surprise that an annual fee is paid once a year. While some cards do break the annual fee into monthly payments, it’s more common for it to be charged once a year during the month in which you first opened your account.

What’s the difference between a secured and unsecured credit card?

A secured credit card is best suited to someone who’s new to credit or rebuilding credit. It always requires security funds but may or may not have an annual fee.

An unsecured credit card, on the other hand, doesn’t require security funds but may (or may not!) have an annual fee.

Can I get my funds back?

Your security funds? You can! If all goes well, you could be moved to an unsecured card after a period of time, at which point your security funds will be returned to you. If not, you’ll get them back if you ever choose to close your account, so long as you’ve paid off your balance in full.

Your annual fee? No. That’s just the cost of having a card and is non-refundable.

Does paying security funds or a higher annual fee increase my credit limit?

Secured cards may allow you to raise your credit limit by submitting more security funds. Sometimes there’s a direct correlation between the amount of security funds you submit and your credit limit.

For example, you could raise your credit limit by a dollar for every dollar you submit, up to a certain amount. Other cards might offer incremental increases in your credit limit for a specific amount of security funds. But every card has its own unique structure and it’s important to wrap your head around what it is before you sign up.

An annual fee doesn’t affect your credit limit. It’s just what you pay to use your card.

Is it better to have a secured or an unsecured credit card?

That depends on you and your own personal credit situation. If you’re working on building better credit or have never had a credit card before, a secured card could be just the foot in the door you need.

If you feel pretty confident about your track record with credit, you might have the option of an unsecured credit card. There’s no shortage of choices! The most important thing is to understand your options so you can make the best decision for you.

* If Quick Check pre-approves a card, you can be 100% sure we’ll approve your application as long as:

a. There’s been no change in your credit file information, personal information or financial status from the time you receive your Quick Check results to the time you apply for one of our credit cards;

b. You’re at least the age of majority in the province or territory you live in;

c. Your application isn’t flagged for fraud prevention;

d. You don’t have an existing Capital One account; and

e. You haven’t applied for a Capital One account in the last 30 days or had an account with us that was not in good standing in the last year. In good standing means not past due, over limit, fraudulent, restricted, or part of a consumer credit counselling program or bankruptcy.

In some cases, we may not be able to open an account for you even though your application was approved. This can happen if we’re unable to verify your identity, or you don’t provide the required security funds if you’re approved for a Secured Mastercard®.