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What you should know about fixed-rate credit cards

A fixed-rate credit card can offer you protection if interest rates start to rise again, but it will take some work to find one.

Summary

When interest rates rise, so could the rate you pay on your variable-rate credit card. With a fixed-rate card, your rate is locked in.

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Interest rates have generally remained stable because of the COVID-19 pandemic, but if they start moving up again, your credit card rate could rise as well.

If you do some digging, however, you might be able to find a credit card with a rate that’s locked in place – and many of these fixed-rate cards carry interest rates that are much lower than the national average, which is 16.15%, as of April 21, 2021.

“Our goal is to look out for our membership” by offering several fixed-rate, low-interest credit cards, said George De Leon, lending manager at Border Federal Credit Union in Del Rio, Texas.

“We want to be upfront with our members” when it comes to their card’s interest rate, De Leon added. With variable-rate cards, “you really don’t know where you’ll end up.”

What is a fixed-rate card?

With a fixed-rate credit card, your rate will typically remain the same for as long as you have the card.

And you might even be able to score a low introductory rate for a few months, however, before the rate rises.

For example, at Border Federal Credit Union, a Visa Platinum card has an introductory rate of 5% for six months and then jumps to a fixed rate of 9%. A Visa Gold card has a six-month introductory rate of 6%, then increases to a fixed rate of 11%.

Like other credit unions, Border is a nonprofit, “we are able to offer a little bit better rates,” De Leon explained.

“With a fixed-rate card, you know what your rate is expected to be and can budget and plan for that,” said Melinda Opperman, president of the nonprofit consumer credit counseling agency Credit.org.

“If you’re making a big purchase and won’t pay off the balance right away, knowing the rate lets you calculate exactly how much the purchase will cost with interest.”

If your financial institution decides to change the rate on your card, it has to give you 45 days’ written notice, Opperman said.

Your existing balances will remain at the original fixed rate. According to the Office of the Comptroller of the Currency, the higher rate will apply only to transactions that occurred more than 14 days after the notice was provided.

Note that your rate also can increase if you’re more than 60 days late making your payment, said Jeff Arevalo, a financial wellness expert with GreenPath Financial Wellness.

Variable-rate cards are common

The vast majority of credit cards carry a variable interest rate.

With variable-rate cards, “the interest rate is tied to the prime rate. That can cause some variations” in the rates you pay, Arevalo said.

But “interest rates have been stable lately,” Arevalo added.

Rates are typically tied to the prime rate, as reported by The Wall Street Journal. The prime rate is linked to the federal funds rate set by the Federal Reserve.

Since the COVID-19 pandemic was declared in March 2020, the prime rate has remained at 3.25%, compared to 4.25% prior to the pandemic. For half of 2018 and much of 2019, the prime rate was above 5%, according to JPMorgan Chase.

The federal funds rate is currently 0% to 0.25% and is the interest rate at which banks and other depository institutions lend money to one another.

If those rates increase, your credit card rates could rise, too.

A variable-rate card “can be very enticing at the beginning, then can change,” De Leon said.

Some variable-rate credit cards, such as the Citi® Diamond Preferred® Card, the Discover it® Cash Back card, are currently offering a 0% introductory interest rate for either balance transfers or purchases or both for more than a year. Then the interest jumps.

The Discover it Cash Back card has a variable rate of 11.99% to 22.99%, while the Citi Diamond Preferred Card has a variable rate of 13.74% to 23.74%.

The rate you pay will depend on your credit score and credit history.

Do some digging

Fixed-rate cards aren’t easy to find, so it’s best to check with your local credit union or community bank.

You also need to check to see if the card that interests you carries annual fees or other fees, which can drive up its costs.

Tropical Financial Credit Union in Pembroke Pines, Florida, for example, has several Mastercard credit cards, with fixed rates starting as low as 8.99%.

Goldenwest Credit Union, based in South Ogden, Utah, has a fixed rate card with rates starting at 9.75%. Based in Hiawatha, Iowa, First Federal Credit Union has a fixed-rate card with a rate as low as 6.99%.

Credit unions often have strict membership rules, such as requiring members to live in a certain location or work for a certain business, so if you find a fixed-rate credit card you like, make sure you qualify for membership at that credit union.

Opperman said getting a credit card with a small local bank or credit union can give you the opportunity to build a relationship with a representative and ask detailed questions about the terms and conditions of the card you’re considering.

Creditors tend to prefer variable-rate cards, Opperman said, “because the lender is protected in the event of an interest rate hike. If they give you a low fixed rate, then the federal funds rate goes up, they can’t pass their extra costs on to you with a higher rate.”

Be careful with credit

Arevalo said for those who carry a balance month to month “a lower rate is better. It doesn’t matter if it’s fixed or variable.”

If you pay off your balance every month, interest rates are less of an issue, he added.

Because it is more likely you’ll be offered a variable rate credit card, Opperman recommended reading the fine print and finding out when penalty rates kick in – which would drive your interest rate up even higher.

Also, consider a credit card’s rewards program and annual fees. “Don’t let your interest rate be the sole factor that sways your decision,” Opperman warned.

If you’re struggling with credit card debt, Arevalo suggested contacting a nonprofit consumer credit counseling agency to help you find strategies for dealing with your debt.

“Keeping healthy credit behaviors is going to the best way you don’t get overwhelmed with your credit card debt,” he said.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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