In this article, we are going to investigate credit cards with a fixed interest rate. Discover what they are, where you can find one, and if they are indeed better than cards with a variable interest rate.
What does it mean to have a fixed rate on a credit card?
Before the Credit CARD Act of 2009, fixed interest rates on credit cards could be changed at any time for any reason, as long as the credit card issuer sent a notice in the mail within 15 days of the change.
As a result, they weren’t really fixed. The act set out to change that. The new definition of a fixed rate is as follows:
“USE OF TERM ‘FIXED RATE’.—With respect to the terms of any credit card account under an open-end consumer credit plan, the term ‘fixed’, when appearing in conjunction with a reference to the annual percentage rate or interest rate applicable with respect to such account, may only be used to refer to an annual percentage rate or interest rate that will not change or vary for any reason over the period.”
The rate can’t change for the first year, except under specific circumstances. After that, the issuer must provide advanced notice 45 days before a rate change goes into effect via a clear and conspicuous message.
Cardholders are given the option to opt out if they don’t agree to the new rate and cannot be penalized for canceling.
Are most credit card rates fixed or variable?
Chargebacks911 co-founder and COO, Monica Eaton-Cardone, adds, “Fixed-rate credit cards exist, but they are few and far between these days. The reason is simple: money.
If interest rates are high, fixed-rate cards are more appealing to both banks and customers. The prime lending rate, however, has been on the low end for several years now.”
Further, after the Credit CARD Act of 2009, the majority of credit card issuers switched to exclusively offering variable interest rates to reduce their risk levels and increase their profit margins.
How do variable interest rates work?
They regularly adjust in response to changes in a financial index (usually the U.S. prime rate).
The national prime rate is based on the prime rates of the largest banks and is usually a few percentage points higher than the federal funds rate set by the Federal Reserve.
When the prime rate changes, we see a domino-like effect in credit card rates, and the amount of interest cardholders pay on their carryover balances.
Where can you find a fixed rate credit card?
While most large banks aren’t offering fixed rate credit cards, they do exist. Here are a few examples.
- Milestone Gold Mastercard
- Indigo Platinum Mastercard
- Applied Bank Secured Visa Gold Preferred
- UNITY Visa Secured Card
- Green Dot primor Visa Gold Secured
- Green Dot primor Visa Classic Secured
- Excent Secured Credit Card
Where do you find out if a credit card has a fixed rate?
SuperMoney makes it easy to filter credit cards by their type of APR when you use its credit card comparison tool.
You can find information on a credit card’s interest rate in the consumer credit card agreement and disclosure. Further, lenders include the card’s interest details in their advertisements.
What are fixed-interest introductory rates?
Finding a fixed-rate credit card can be hard.
What’s more common are credit cards that offer a promotional introductory fixed-rate for a specific period before the adjustable interest rate goes into effect. For example, 0% interest on purchases and balance transfers for 12 months.
After the promotional period ends, the rate will increase to a higher variable APR. Cards with these offers can help cardholders save while paying off a balance.
Further, they give the same benefit of a fixed rate card by assuring the rate doesn’t fluctuate for an initial period.
Fixed rate vs. variable rate credit cards
Is it worth the effort to look for an issuer that offers fixed-rate credit cards? Here are a few factors to consider:
Eaton-Cardone says, “When a bank locks in customer rates, it’s essentially betting that the prime rate will not jump dramatically for at least a year. If it does, the bank could potentially lose millions.
To hedge their bets, issuers set fixed rates higher than average. The banks are still taking a risk, but they don’t stand to lose quite as much.
The problem is customers don’t want to pay that higher rate, so they do some gambling of their own. Most take a card with a lower but variable rate, betting that the prime won’t rise dramatically over the next year.”
She adds, “Why a year? Well, despite the name, fixed-rate credit cards really aren’t. The issuer can raise the rate after a year, simply by informing the customer. Over the long haul, both rates are still tied to the prime rate.”
Here’s a summary of the pros and cons of each option.
Here is a list of the benefits and the drawbacks of fixed-rate credit cards
- Interest rate remains more stable
- A 45-day written notice required for a change in rates
- Option to opt-out of rate changes
- Interest rates usually start higher than variable rates to cover risk
- Opting out and closing your card can hurt your credit
- Not widely available
- May have to join a credit union to get the offer
- Rates can still change
Here is a list of the benefits and the drawbacks of variable-rate credit cards
- Lower initial interest rate
- Option to opt-out of the margin increase
- Widely available
- Competitive rewards and benefit programs
- Interest rate fluctuates without required notice
- Margin above the prime rate can be increased with advanced written notice
- Opting out and closing your card can hurt your credit
What is the best credit card with the lowest interest rate?
For every consumer looking for a credit card, the bottom line lies in getting the lowest overall cost with the most benefits. While a fixed rate credit card may be appealing, variable rate cards can be very competitive as well.
There is a wide range to choose from, and many have competitive rewards programs, benefits, and promotional introductory periods. Further, fixed-rate cards do have their drawbacks.
They are hard to find, interest rates can still change over time, and they often start with a rate that is higher than cards with a variable rate. It’s best to shop around to see what rates and terms you can get from multiple providers before making a decision.
Want to see dozens of credit card offerings in one place? Check out our Personal Credit Card review page to easily compare them side-by-side.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.