Fixed rate credit cards from CreditCards.com

By Ben Woolsey

Credit card offers typically highlight their low or 0 percent APR introductory rates and other enticing features but rarely talk much about what happens when those credit card intro rates go away after six or 12 months. The "go to" rate, as it is called, is more often than not a variable rate based on an index such as the prime rate (a favorable rate for consumers, set at 3 percent above the "federal funds" rate set by the Federal Reserve). The go-to rate also varies depending on your overall credit profile, since banks make their lowest rate offers to those with the best credit.

Variable interest rates appear to be very consumer friendly if the prime rate is falling (as it was in the past few years) but banks normally place what is called a "floor rate" in their card member agreements to maximize their profit margins during such economic environments. The rate does float upward when the prime rate rises, however, which allows the banks to fully pass on their increased cost of funds to consumers.

Fixed rate credit cards do exist in the marketplace and, for example, are often touted as a fixed 9.9 percent APR after the introductory period. While a fixed rate credit card might seem more appealing on the surface, it is important to realize that banks can and often do change their "fixed" rate credit card rates by merely providing 15 days' written notice in a nondescript mailing or as a buckslip (a small insert the size of a dollar) in your monthly billing statement.

Because the terms "fixed" and "variable" have little meaning, it's far more important for consumers to keep balances low, pay bills on time and comparison shop periodically to make sure they're getting the best possible credit card deal.

Published: August 18, 2005

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