Credit card annual percentage rates, or APRs, typically rise and fall along with the federal prime rate. Although you can still find fixed rate credit cards available on the market, the task is not as easy as it used to be. Fixed rates also come with their own set of warnings, as the rate does not necessarily remain fixed for the life of your credit card account.
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The trend away from fixed rate credit cards began as early as 2009, according to an article in the Wall Street Journal. The article noted a switch from fixed to variable credit card rates in 2009 for account holders with Chase, Bank of America, and Discover. Those who did have the option of opting out of the changes from fixed to variable rates had to do so by closing their accounts.
Difference between Fixed and Variable Rates
Fixed rates refer to an interest rate that remains fixed for a certain amount time, according to the Federal Reserve, whereas variable rates can change overnight. Fixed rate credit cards may benefit the consumer with a steady, predictable APR. Credit card holders can then more accurately calculate what they are spending and what they will owe based on a predetermined rate with which they are familiar.
Fixed rates may be a detriment to a business, however, when the prime rate increases greatly and the issuer is stuck offering a much lower fixed rate to the consumer.
Variable rate credit cards, with rates that change regularly, may offer better protection for the credit card issuer, but not as much protection for the consumer.
When the prime rates dip, variable rates generally also dip, but when the prime rate soars, a variable APR may soar right along with it. Fixed rates are more common with loans, mortgages, and financial transactions other than credit cards.
Other Factors that Determine Credit Card Interest Rates
Your credit card interest rate may vary based on the type of credit card as well as the type of transaction for which you are using the card. CNN Money offers a list of the average rates of credit cards on any given day based on the different credit card types.
Although average interest rates can change overnight, the overview does offer a general idea of the credit cards that generally have the highest and lowest rates. This situation would likely hold true whether you found a particular type of credit card with either a fixed or variable rate.
The rates change regularly, but a look at credit card interest rates on any given day usually shows the credit card types in a distinct order. Low-interest credit cards, as their name suggests, are at the bottom of the rate scale, followed by business credit cards. The next-lowest rate by credit card type is usually the reward credit cards. Balance transfers and cash back transactions usually have a higher interest rate than the credit card’s overall APR and interest rates that are at the high end of the scale.
Other interest rates that may differ from the overall APR include a penalty APR and an introductory APR. The penalty APR is generally a high interest put in place and removed at the credit card’s issuer discretion of you fail to make timely payments.
The introductory APR is typically a very low or 0% APR fixed in place for a set duration known as the introductory period. Very low APRs are one of the major marketing tools credit card companies may use to lure you in; read the fine print to find out what the APR will be once the introductory period expires.
Credit Card Issuers Can Change Fixed Interest Rates
Even with a fixed interest rate, credit card issuers have the leeway to change the interest rate as long as they do so following federal guidelines, according to the U.S. Treasury’s Help with My Bank website. New regulations were put in place in February 2010 that requires fixed rate credit cards to adhere to strict stipulations.
These include keeping the fixed rate of a new account fixed for at least one year after opening the account and notifying you in writing at least 45 days in advance of a change to the fixed rate. Credit cards advertised as fixed rate credit cards must also disclose how long the rate will be fixed in place and clearly state it will not be raised during that period.
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