Janet Yellen, Chair of the United States Federal Reserve, has thus far made good on her promise to raise the prime rate for the purpose of responding to economic needs. Financial analysts believe that the Fed will resolve to raise interest rates twice more this year, and Yellen has made it clear that she stands ready to combat market volatility with higher rates.
On one hand, rising interest rates at a time of economic recovery is a good macroeconomic sign because it denotes that better times may be ahead. When the Fed agrees to lower the prime rate is because the economy needs to be stimulated. On the other hand, higher interest rates means that credit card holders are stuck paying higher monthly bills.
The Rarity of Fixed Rate Credit Cards
Unlike mortgages and auto loans, American credit cards rarely feature fixed interest rates. For the financial institutions that issue credit cards, a fixed annual percentage rate (APR) is not the most attractive option in terms of profit. For a bank, the problem with a fixed rate Visa or MasterCard would be to issue them at time when the short-term rate of interest is bound to rise, and this just happens to be the case in 2017.
Credit card issuers are required to file their agreements and reports with the Consumer Financial Protection Bureau. The latest batch of agreements received by this government agency, which the Trump administration is seeking to downsize, does not include too many fixed rate products.
Only a few small banks and credit unions are offering fixed rate credit cards in 2017. In some cases, opening an account with one of these institutions may require living in the communities they serve or joining a charitable organization. For some consumers, a fixed rate would make sense, but not all the time.
The Benefits of a Fixed Rate Card
Let’s say a credit union offers a credit card with a fixed APR of nine percent. While this would be lower than the national average rate of 16 percent during the second quarter of 2017, there are better deals to be found.
Zero percent APR periods are still being offered by some card issuers; these teaser rates typically last between six and 24 months. Other cards may feature variable APR terms as low as six percent; such cards may charge membership fees and limits on available credit.
College students and people whose credit history preclude them from taking advantage of zero percent APR offers would certainly benefit from fixed rate cards, which could also be effective for consumers who plan to purchase an expensive item; for example, a high-performance mountain bike could cost thousands of dollars, and thus it would make sense to finance it with a fixed rate.
Although fixed rate cards are rare these days, they may become popular again if the prime rate increases past seven percent. It is important to note that card issuers are allowed to renegotiate fixed rate terms on an annual basis, which means that a fixed rate may still be increased after twelve months.