Here's the Basics:

These days, fixed rate credit cards are a "rare breed". Most credit card issuers only offer variable APR's because they protect banks from interest rate hikes and poor economic conditions. But can this benefit you (as well as the bank)? First, you need to understand the difference between variable and fixed rates:

• Variable Rate: Variable rates are normally based on one of the following indexes: the PRIME RATE, the Federal Reserve Discount Rate, or the Treasury Bill Rate. The credit card company adds a "margin" to the index to come up with the variable APR. When the index goes up, so does the credit card rate. Likewise, if the index goes down, your credit card APR does as well.
• Fixed Rate: A fixed rate is supposed to be "fixed". This means that the interest rate doesn't vary while you hold your card. But here's the catch: the credit card company reserves the right to change your rate at any time. As long as you are given at least 15 days notice, your "fixed" rate could be changed.

Variable vs. Fixed Rate:

Don't expect your "fixed" rate to stay fixed forever! Although the credit card companies advertise a rate as "fixed", it can still be changed! Here are some factors to consider:

Variable Rate Credit Cards:

PROS:

If the PRIME RATE decreases, so does your credit card rate!

CONS:

If the PRIME RATE increases, your credit card rate does too. The credit card's variable APR can change regularly and law does not require an advanced notification.

Fixed Rate Credit Cards:

PROS:

Interest rates should stay "fixed" even if interest rates rise. By law, if the "fixed" rate is changed you must be notified in advance.

CONS:

A "fixed" rate can be changed at any time! If interest rates decrease, you may not see an immediate benefit.

Which is Best:

Variable rate credit cards are a great option if you know interest rates are decreasing. As the PRIME RATE falls, so will your APR! But if interest rates are rising, you can try to reduce the impact with a fixed rate card instead. Although, the credit card company will probably raise rates on a "fixed" APR as well, it won't be immediate like a variable rate credit card and you will recieve notification in advance.
 

Other Related Articles:

Low interest vs. 0% APR credit cards: Not sure if you should apply for a low interest or a 0% intro APR credit card? We'll show you the pros and cons of each!   Choosing the best low APR / 0% credit card: Find out what factors you should consider when choosing a low interest or 0% APR credit card offer.   Save money with low interest / 0% credit cards: Start saving money with a low interest or 0% intro APR credit card. We'll show you how to benefit from both!   Using 0% APR credit cards to become debt free: Find out how you can use 0% APR credit cards to save money on interest and become totally debt free!