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Fixed-rate credit cards offering a better deal than variables -- for now

Fixed-rate credit cards are the better deal If you're looking for a new credit card, think fixed.

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.

The numbers
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 cards.

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 New York.

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Not for everyone
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 at Consumer 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."

Low 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 of America.

"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."

The 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

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See Also
Related story: What can you do when your rates rise?

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Credit Cards
Compare weekly rates
WEEKLY AVERAGES
Type Fixed Variable
Standard 13.23% 14.86%
Gold
Platinum 12.70% 15.84%
All 13.02% 15.57%



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