cards offering a better deal than variables -- for now
If you're looking for a new credit card, think
Since April, the annual percentage rates on
fixed-rate gold and standard cards have beat the rates offered by
variable-rate cards, according to the Bankrate.com national index
of the Top 10 markets.
"It does look like fixed rates are a good deal
right now," said Gerri Detweiler, author of The Ultimate Credit
Handbook and education Adviser for Debt
Counselors of America. "Rather
than hassling around with teaser rates, get a good fixed-rate card."
But remember, fixed rates can change any time.
In August, the national average on fixed-rate gold cards was 14.71
percent as compared to 15.62 percent for variable-rate gold cards.
Likewise, the national average for fixed-rate standard cards was
15.13 percent in August, 1 percent better than variable-rate standard
Fixed-rate platinum card offers also are outdoing
their variable-rate competitors. The national average for new fixed-rate
offers slid to 12.74 percent in August, well below the 15.89 percent
for variable-rate offers.
Industry analysts expect the low-rate trend
to continue as more issuers follow the lead of First USA and Capital
One and push cards with 9.9 percent and 9.99 percent fixed rates.
"There's definitely a herd mentality in the
industry around pricing features," said Lee Spirer, a principal
in the financial services group for Booz, Allen & Hamilton in
Consumers should realize two things about offers with low fixed
APRs. First, only customers with excellent credit are likely to
qualify for the super-low rates. Second, as with all fixed-rate
card offers, the rates can be raised.
According to federal law, issuers must give
written notice of rate increases to fixed-rate cardholders a mere
15 days before the new rate takes effect.
"People are kidding themselves if they think
a credit card rate won't change," said Linda Sherry, editorial director
Action, a San Francisco, Calif.-based consumer advocacy group.
"Unfortunately, they can."
Some view the low fixed rates as a marketing
ploys and little else, since there is nothing to force them to last
any longer than a teaser rate on a variable-rate card.
"I don't think there's a material difference
for consumers," said Ed Mierzwinski a spokesman for U.S.
Public Interest Research Group. "However, some banks have found
a new marketing gimmick to exploit."
rates may not last
And while it is unlikely that an issuer will make frequent changes
to fixed rates, the changes do happen -- especially after a merger
or a change in management.
"A low fixed rate generally stays in a low range
unless something changes in the bank's strategy," Detweiler said.
"Most issuers don't raise the fixed rate unless something happens:
new management, a lot of losses, they sell the portfolio, a change
in interest rates."
Because the changes in rates can happen so quickly,
consumers should be on the alert. Read everything sent by the issuer
-- especially the fine print.
"The change in term stuff isn't eye-catching.
You have to pay attention or you'll find yourself paying a much
higher interest rate than you thought you agreed to," said Jean
Ann Fox, director of consumer protection for Consumer Federation
"Be sure to read all the boring fine print that
comes in the envelope with the bill -- that's where changes in the
terms are disclosed."
choices are there
Because a good rate can change to a so-so rate in just a couple
of weeks, experts urge people to always be on the lookout for a
better credit card deal.
"The changes happen so quickly you can't rest
on your plastic," Fox said. "You have to keep at it."
The card choices are out there.
Spirer points out that intense competition in
the credit card industry has driven down annual percentage rates,
and has prompted issuers to roll out new products and offer credit
to more people.
"The competition in the industry will continue
to provide consumers with greater choices."
-- Posted: Aug. 31, 1998