Which Is Better a Fixed or Variable Rate Credit Card?

Credit cards have either a fixed or a variable interest rate.

Fixed Rate Credit Card

A cardholder with a fixed rate credit card always knows his interest rate. Although the credit card company can increase the rate after one year, the company must notify the cardholder in writing 45 days in advance and the cardholder can cancel the card and pay the balance at the lower rate.

Variable Rate Credit Card

Because a variable rate credit card is linked to the prime interest rate, its rate fluctuates frequently. An advantage is that when the prime rate decreases, the credit card interest rate follows suit quickly, unlike a fixed rate card for which the issuer has little incentive to lower the rate immediately.

Bottom Line

Both types of cards have interest rates that fluctuate over time, so there may be little practical difference between them. Yahoo suggests that fixed rate cards are better when interest rates are low and variable rate cards are better when interest rates are high and likely to decrease soon.

References

• CNN Money: High Rates, More Fees -- Credit Card Traps Here to Stay
• Yahoo! Finance: Shopping for a Credit Card... Fixed vs. Variable Rates
• MSN Money: Credit Card Reform: The Other Shoe Drops