If you carry a balance and can get a low interest rate, you might consider getting a fixed-rate card. But fixed-rate credit cards can be difficult to find and may come with other drawbacks. Here’s a look at whether these cards might be a good option for you.
[Read: Best Low-Interest Credit Cards.]
What Are Fixed-Rate Credit Cards?
Most credit cards today have a variable annual percentage rate, meaning the interest rate will go up or down based on the benchmark rate, such as the prime rate. But with a fixed-rate credit card, the APR isn’t tied to an index. The interest rate typically remains the same for the first year the account is open, but it can change under certain circumstances — including if you’re more than 60 days late on your payment or have a promotional rate that ended.
“If a fixed-rate card is available, one benefit is the rate is going to be more predictable,” says Deborah Goldstein, executive vice president at the Center for Responsible Lending, a nonprofit research group. “That could be a good way of managing both what interest you’re accruing and how you’re going to pay the principal and interest of the total balance off.”
You probably won’t find a fixed-rate card from a major issuer. Many banks have stopped offering them because they don’t want to be locked in when rates rise. Most fixed-rate cards are available from credit unions or smaller banks.
April Lewis-Parks, director of education and corporate communications for Consolidated Credit, a nonprofit credit counseling agency, says, “Credit card issuers want to be able to make more money and raise interest rates according to the Federal Reserve and/or index rates.” While most credit card issuers only offer variable interest rates, credit unions and smaller banks “are always fighting for new clients” and may offer fixed-rate credit cards when rates are low to attract new customers.
Fixed-rated cards were easier to find until 2009, when Congress passed the Credit Card Accountability Responsibility and Disclosure Act, which put restrictions on card issuers and caused many to exclusively offer variable-rate cards. Before the Credit CARD Act, interest rates on fixed-rate cards could be changed as long as the issuer sent a notice in the mail within 15 days of the change.
“These cards were not really fixed at all,” Lewis-Parks says.
Can Rates on a Fixed-Rate Credit Card Increase?
Absolutely. Fixed rates don’t fluctuate as easily as variable rates do, but they can change even if you haven’t been late on payments.
With a variable-rate card, your interest rate can change in the first year after a promotional rate ends or the prime rate changes. No notice is required for promotional rate or prime rate changes.
A fixed-rate card’s interest rate can’t change with the prime rate in the first year, but it can change from a 0% promotional APR to the regular fixed rate during that time period. Your issuer can raise your rate after the first year with 45 days’ advance notice. You can opt out of the interest rate hike and cancel your accounts while paying off the balances under the older, lower interest rate, though that option may affect your credit score. But if you keep the credit card open, the issuer determines rates for new purchases, Lewis-Parks says.
When Might a Fixed-Rate Credit Card be a Good Choice?
If you’re buying big-ticket items, such as furniture or home appliances, or paying for home maintenance projects, such as roof repairs. In those situations, you may plan to carry a balance on your card. So if you can get an attractive fixed rate, you’ll know each month what your payment will be. You won’t have to worry about a surprise rate hike, like what you might see with a variable-rate card. That makes planning easier, Lewis-Parks says.
To consolidate credit or manage debt. A card with a low fixed rate can be a great tool for balance transfers — with one caveat, according to Lewis-Parks: “People just need to be aware most card issuers charge a 3% to 5% balance transfer fee.”
However, in both of these situations, a card with an introductory 0% APR could be a better choice. A no-interest credit card offer will be lower than a fixed-rate offer, as long as you pay off your balance before the promotional APR expires.
Downsides of Fixed-Rate Credit Cards
A fixed-rate credit card that locks you into a high APR is a poor choice. If a fixed-rate card is lower than average — which, according to U.S. News data, is typically between about 17% to 24% — it could be considered a good fixed rate, Lewis-Parks says.
For example, the Green Dot primor Mastercard Classic Secured Credit Card has a below-average 13.99% fixed APR. But the Indigo Platinum Mastercard‘s fixed APR is 23.9%, which is at the high end of average.
You should also consider other costs that could apply to a fixed-rate card. The Green Dot primor Mastercard Classic Secured Credit Card requires a security deposit of at least $200 and a $39 annual fee. The Indigo Platinum Mastercard may change an annual fee as high as $99.
[Read: Best 0% APR Credit Cards.]
Other Fixed-Rate Credit Card Considerations
Still trying to decide between a fixed-rate or variable-rate credit card? Here are some other things to think about:
— You’re not limited to a fixed-rate card if what you’re ultimately looking for is a low APR. Variable-rate cards may have below-average APRs or 0% introductory APRs on purchases or balance transfers.
— Confirm your interest rate and check your balance every month. Because the rules are different for variable-rate and fixed-rate cards, “you might get different notifications from the credit card company, depending on what you have,” Goldstein says. “So if you read your statements every month, you’ll be in much better shape to know what’s coming.”
— Make it a goal to pay your balance in full each statement period so you don’t have to worry about the APR at all. Jory McEachern, director of operations at credit repair service ScoreShuttle, says, “An interest rate is irrelevant if, in fact, you’re paying off your balances every month.”
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