Fixed rate credit cards have generally become rare, with cheap fixed rate credit cards even tougher to find. That does not mean, however, you will not find them as long as you do your homework and start looking.
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Fixed rate credit cards began to drop off the map around 2009, the Wall Street Journal reports. A major reason behind their extinction is the way they can result in a loss of money for the credit card issuer.
How can fixed rates lose money for credit card issuers?
To understand how a cheap fixed rate, or any fixed rate, can be a detriment to a business, it’s best to first understand the difference between fixed and variable credit card rates.
Fixed APRs remain stable regardless of what is going on with the economy while variable interest rates rise and fall with the economic tide, the Federal Reserve explains.
Since interest rates are typically based on the Treasury’s prime rate of the moment, variable rates afford a safety net for the credit card issuer, ensuring the issuer does not lose money on interest when interest rates skyrocket. The rates also stay in pace when interest rates dip, which provides a benefit to the consumer.
Fixed rates remain that way, at least for a set amount of time, regardless of what is going on with the prime. While the consumers may end up paying a higher credit card interest rate with a fixed rate if the prime rate plummets, they are protected with a lower credit card interest rate if the prime rate sharply increases.
Fixed Rates are Not Fixed Forever
Nothing lasts forever and there is no guarantee a fixed interest rate will, either. Your credit card agreement discloses when a fixed rate expires, which is often the case with credit cards that come with a 0% or very low introductory rate.
Credit card issuers can also change fixed rates in accordance with laws enacted in early 2010, according to the U.S. Treasury’s HelpWithMyBank website. The laws state fixed rates must remain fixed for at least 12 months after you open the credit card account.
Issuers must also alert you of a change in a fixed rate at least 45 days prior to the rate change. The alert must come in writing from the issuer. One more stipulation is that the credit card agreement must state the duration of the fixed rate and must guarantee the fixed remain remains fixed during that entire duration.
Cheap Fixed Rates Do Not Automatically Mean a Good Deal
Although a cheap fixed rate on your credit card can be a major benefit, it is not the end-all when it comes to determining how good a deal a credit card may be. For starters, different interest rates may apply to different transactions. Your cheap fixed rate may be for new purchases only, while any balance transfers or cash advances may be charged at a different interest rate.
You also want to keep an eye on the penalty interest rate, which a credit card company can apply if you fail to pay off your bills on time or otherwise break the rules of the agreement. Penalty APRs are typically very high and can be left in place for as long as the credit card issuer deems necessary.
Fees are another factor that can help make or break a credit card deal. The Federal Reserve points out a number of fees that can come with a credit card, regardless if the interest rate is fixed, variable, cheap, or expensive.
These fees may include penalty fees for failing to follow the credit card agreement rules and an annual membership fee just for having the credit card, regardless if you actually use it or not. Other fees may come in the form of an application fee, account set-up fee, and fees for transferring balances or taking cash advances.
Charging an amount above your credit limit may also result in a fee, as can asking for an increase in your credit limit. Just as federal laws offer some protection regarding interest rates, they also offer a bit of protection against outrageous fees.
During the first year of any new credit card account, the credit card issuer can only charge a total amount of fees that are less than or equal to 25% of your initial credit limit.
This may be a good thing to keep in mind when you are offered a credit card with a very high credit limit.
Keep an eye on fees and different interest rates while you search for cheap fixed rate credit cards with our FREE credit card chaser!
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