If you carry a credit card 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 drawbacks. Here’s a look at whether these cards might be a good option for you.
What Are Fixed-Rate Credit Cards?
Most credit cards today have variable annual percentage rates, 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 your payment is more than 60 days late or your promotional rate ends.
You probably won’t find a fixed-rate card from a major issuer. “Fixed-rate credit cards are rare, as lenders in a tight credit environment are less willing to take the chance of a fixed rate,” since the rate doesn’t change with increases in inflation or the prime rate, says Steve Azoury, a chartered financial consultant and owner of Azoury Financial in Troy, Michigan.
You’re most likely to find fixed-rate cards at credit unions or smaller banks.
[Read: Best Credit Cards.]
Can Rates on a Fixed-Rate Credit Card Increase?
Absolutely. Fixed rates don’t fluctuate as frequently as variable rates do, but they can change even if you haven’t activated a penalty APR by being 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 of notice.
For cards with either fixed or variable rates, rate increases typically only apply to new charges, not existing balances.
[Read: Best Balance Transfer Credit Cards.]
Where Can You Get a Fixed-Rate Credit Card?
Fixed-rate credit cards are harder to find than variable-rate credit cards. Fixed-rated cards were easier to find until Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009, which put restrictions on card issuers and led many to exclusively offer variable-rate cards.
The easiest place to find a fixed-rate credit card today is through your local credit union or community bank.
“Credit unions tend to be the best place to secure a fixed-rate credit card, as they are in business to serve their members,” Azoury says. “Banks typically are more driven by profit-minded shareholders and are less willing to accept the lower returns if market rates increase.”
Credit union fixed-rate credit cards include:
— Unify Financial Credit Union Fixed Rate Visa Credit Card
— First Federal Credit Union Visa Premium Credit Card
— Qside Federal Credit Union Mastercard
— Ardent Credit Union Visa Platinum or Visa Classic
Other things to think about when shopping for a fixed-rate credit card:
— You’re not limited to a fixed-rate card if you’re ultimately looking for a low APR. Variable-rate cards may have below-average APRs or 0% introductory APRs on purchases and/or balance transfers.
— Confirm your interest rate and check your balance every month. The credit card company is required to notify you of any rate changes, but these notices can be easy to miss, says Diane Hirschhorn, a lecturer of finance in the Leeds School of Business at the University of Colorado Boulder. Your statement will show your current interest rate.
— 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.
How Can You Avoid Interest on Credit Cards?
Regardless of if you have a fixed- or variable-rate credit card, your goal should always be to avoid paying interest. These charges can add up quickly.
“Credit card rates are among the highest available due to the fact there is no collateral to back up the risk to the lender in case of default,” Azoury says.
To avoid paying interest on your credit cards, follow these tips.
[Read: Best No-Annual-Fee Credit Cards.]
Pay Your Balance in Full Each Month
If you’re paying your credit card balance
in full each month, the interest rate is irrelevant because it’ll never apply to your purchases. “If you can’t do this, please make sure you always make at least the minimum payment, and hopefully more,” Hirschhorn says.
If you don’t make at least the minimum payment, your credit score could go down.
Sign Up for Auto-pay
Auto-pay decreases the chances of missing a payment. The trick to making this service the most effective is to set it to pay your balance in full each month, though you’ll need to ensure you have enough funds in your bank account to cover the bill.
“When you sign up for auto bill pay, it almost always defaults to minimum monthly payment,” Hirschhorn says. Instead, make sure you check the box to pay your full balance with each payment so you don’t incur interest.
Look for 0% APR Promotions.
A better option than fixed-rate credit cards, according to Hirschhorn, is to find a credit card with a 0% APR introductory offer. This gives you a predetermined length of time — often 12 to 18 months — during which you won’t pay any interest on new purchases and sometimes even balance transfers.
You can even game the system a bit by rolling your existing balance to a new 0% APR card when the first one expires, Hirschhorn says.
Avoid Triggering Interest Rate Hikes.
Consumers should focus on things they can control, Hirschhorn says. This includes actions that can prompt a rate increase. “If you miss a payment and don’t catch up within 60 days, it’s likely going to trigger a penalty APR,” which can be almost 30%, she says. This is why it’s important to always make at least the minimum payment each month.
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’s APR is lower than the average credit card APR — which, according to the Federal Reserve, was 20.09% across all accounts in the first quarter of 2023, the last time the national data was updated — it could be considered a good fixed rate.
You should also consider other costs that could apply to a fixed-rate card, such as any annual fee. If you plan to use a balance transfer card, pay close attention to any fees assessed.
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How to Find a Fixed-Rate Credit Card originally appeared on usnews.com
Update 07/17/23: This story was published at an earlier date and has been updated with new information.
