Low Interest Credit Cards - Compare & ApplyBy Joe Taylor Jr.
The financial crunch of 2008 changed the way Americans use credit cards. Despite a low prime lending rate, APRs skyrocketed to some of the highest rates in a decade. 2009's Credit CARD Act eliminated banks' ability to adjust APRs without cause or notice. Years later, credit card interest rates have yet to come back down to earth. However, if you know where to look and how to build a strong credit score, you can still find single-digit APRs.
How banks set credit card interest rates
Even the best zero percent credit cards rely on "teaser" periods that fall within strict Federal Reserve guidelines. Once your promotional period expires, your new credit card's interest rate falls into one of two categories that bank's can't change without your consent:
- Variable APR. The most common credit card agreement ties the finance charges you'll pay to the prime rate: a bank-to-bank lending rate that's set to a few percentage points higher than the rate at which the Federal Reserve lends cash to your credit card issuer. Variable rates protect banks from losing money, since they're really just marking up the finance charges they pay to the Fed or to investors.
- Fixed APR. For decades, fixed APR credit card offers dominated the marketplace. Consumers loved the security and stability of knowing their rate wouldn't change, but banks employed contracts that gave them the flexibility to adjust offers at whim. Under current rules, a bank can't yank a low fixed rate unless you agree to a change in your contract.
Federal regulations require banks to disclose the exact nature of the "go-to rate" your zero percent credit card will carry after your promotional period expires. The "Schumer Box" on your credit card application will either note a fixed APR, or the "spread" a bank uses to calculate your variable finance charges.
Banks may even opt to use a series of spreads based on applicants' credit ratings. Knowing the spread means you can always calculate your current APR by adding the spread figure to the published prime rate referenced in your card's terms and conditions.
Finding low interest credit cards
Even though it makes sound business sense for banks to rely on variable interest rates, a handful of institutions that still offer fixed rate credit cards view those products as either customer service or marketing tools. You'll often find low interest credit cards from:
- Banks that offer high yield savings accounts. When banks borrow money from savers and investors instead of from the government, they insulate themselves from volatile market conditions.
- Credit unions. By definition, accountholders also own shares in these non-profit financial institutions. Credit unions define success as saving members money instead of delivering profits to shareholders.
- Financial "supermarkets." Banks, brokerage houses, and even some retailers use low interest credit cards to win new accounts, hoping to earn more lucrative stock commissions or service fees from your other financial transactions.
Most banks save their lowest APRs for no-frills credit cards that don't offer rewards or rebates. However, if you plan on carrying a balance for an extended period, you'll save far more on a low interest credit card than you'll earn through even the best credit card reward programs.
When shopping for a low annual percentage rate, investigate how you might save more money by bundling your credit card with other financial products, such as online savings accounts, auto loans, retirement funds, and stock trading services. Compare the low interest credit card offers on this page to find a deal that might be right for you.