All About Fixed Rate Credit Cards

Posted by CardOffers.com Staff | September 15th, 2009 | General Information, Help & Tips

Before submitting any type of credit card application, it is important to determine whether the card comes with a fixed rate or a variable rate. Many consumers never stop to consider the difference, but going with a fixed rate credit card may be the wisest move, depending on current and projected economic conditions. Here is what you need to know about these credit cards, and how to find the best credit cards with a fixed rate.

A fixed rate credit card carries a rate of interest that is permanent from the first day the account is open. The APR, or annual percentage rate, is constant, and is not subject to changes in the economy. Changes in the prime lending rate have no effect on the percentage of interest charged on outstanding balances. This makes it much easier to calculate how much interest will be paid over the course of a year when a pre-determined amount of the outstanding balance is carried from one month to the next.

By contrast, variable rates are impacted by the up and down movement of the economy. When the prime lending rate adjusts in either direction, the rate of interest on the credit card will follow. While this can result in a more favorable rate during periods when the prime rate is down, it also means that the rate of interest can rise significantly when the prime rate increases.

Regarding usage, general terms and conditions, and credit limits, there are no differences between credit cards with a fixed rate and cards that carry a variable rate. Both types of cards may come with a low introductory rate that usually runs for the first six months to a year after being activated. The difference occurs when that introductory, or honeymoon, period is over.

With a fixed rate card, the consumer knows in advance exactly what rate of interest will apply to any outstanding balance once the low introductory rate expires. This makes it much easier to plan on how to retire the debt before this period ends. It also makes it easier to determine when and how to use the card once the permanent rate goes into effect.

There is no doubt that consumers benefit from a fixed rate account when the economy is unstable. Because the rate will not change as inflation or recession affects commerce in general, consumers who need to manage their money closely can be less concerned about rising interest rates, since their credit card rates are locked in. By contrast, consumers who use cards with a variable rate may see dramatic swings in the rates applied to outstanding balances, depending on what is happening with the economy in general. For people attempting to ride out a period of economic unrest, this one factor can make the difference between making ends meet each month and falling behind in their debt obligations.

Determining whether a fixed rate card is the best option often involves looking closely at several factors. First, there is the matter of how the economy currently stands. If a credit card deal carries a variable rate that is below the current prime rate, it is certainly worth considering that card option. This is especially true if cards carrying a fixed rate are higher than the current variable rate you can obtain.

Along with looking at rates as they stand today, it is also important to project how the economy will move over the next six months, next year, and over the next five years. Researching the projections made by financial experts can often help educate the consumer in what to expect in terms of an increased variable rate over the long-term. If it appears that the great variable rate of today will be significantly higher within a year, and remain so for an extended period of time, considering a card with a fixed rate is an excellent idea.

The degree of personal risk involved should also be considered when choosing between a fixed rate and a variable rate. Some people prefer to keep risk at a minimum, even if there are economic indicators that point to possibly saving money over the long haul. When that is the case, going with a fixed rate allows them to sleep better at night. But people who are willing to take a chance and would take great joy in experiencing periods where the interest rate drops from time to time are more likely to be happy with a credit card carrying a variable rate of interest.

While the idea of a permanent rate does provide the consumer with more protection than a variable rate, it is important to remember that a card issuer can change a fixed rate if economic conditions require it. Normally, this is accomplished by notifying the card holder in advance that the fixed rate will move upward from the current rate to a new one within a given amount of time. The notification may come as a special mailing, or be included as an insert enclosed along with the monthly credit card statement, or even as a line notice on the statement itself. In some countries, this change in rates can take place with a notice as short as fourteen calendar days.

There are predictions that any discussion between the relative merits of fixed rates versus variable rates on credit cards will eventually become irrelevant. In recent years, more credit card providers have moved to a format that calls for the application of a variable rate of interest once the introductory period is over. However, consumers who prefer to go with a fixed rate can still find a number of deals out there.

Before making a decision, look closely at your situation, your approach to finances, and what you hear from experts about the future movement of the economy. Taking the time to do so will help you compare credit card ratings for both fixed and variable rate options, and opt for the solution that is more likely to meet your needs over the long-term.

Tags: annual percentage rate, APR, Fixed Rate, Fixed Rate Credit Cards, variable rate
Filed under: General Information, Help & Tips |

One Response to “All About Fixed Rate Credit Cards”

1. Grant Says:
   April 22nd, 2010 at 5:06 pm

   Great blog. I really didn’t understand much about APR and since my debit card was frauded last year, I’ve tried to make an effort to understand everything I can about credit and debit cards

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