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Benefits And Drawbacks Of A Variable Rate Card

Aug 18, 2007
If you are looking at a credit card, then you might be looking to choose between a variable rate or fixed rate card. Although fixed rate cards are easy to understand, working out whether a variable card is right for you or not can be trickier. If you are interested in learning about variable rate credit cards, then here are some of the drawbacks and benefits of such cards.

What does variable mean?

A variable rate card means that the interest rate on the card will change along with the Bank of England base rate. The credit card issuer will track the base rate of the Bank of England and then add a percentage to that. For example, if the base rate is 4% and the card issuer adds 5%, then your credit card rate will be 9%. If the base rate increases or reduces then your interest rate will change. For example, if the base rate fell to 3.5% then your rate would reduce to 8.5%.

Costs of a variable rate

Variable rate cards are generally cheaper than fixed rate cards, although obviously you have the potential risk of the interest rate increasing over time. Of course, the fees and other terms of variable rate cards vary from issuer to issuer, and you need to shop around to find a package to suit your own needs.

Interest rates low

At the moment, getting a variable rate card is properly a good bet, because interest rates have been low or falling for the last decade or so, and there is no indication that they will rapidly increase in the near future. Even if they do increase, interest rates take a while to increase significantly, and even a change of 1% can take a year or so. Although relying on the market to get lower isn't a good way to choose a credit card, at the moment the market looks fairly good for getting variable rate cards.

Fixed cards

Although variable rate cards generally have higher interest rates, you can at least be certain that the rate will not change over the next few years. If you want the peace of mind that your interest rates will remain the same, then a fixed rate card will be a good choice. If the interest rates were to rise in this time then you would definitely save money as well as having security. If you think interest rates will rise then go for a fixed rate card.

Paying off your balance

Of course, whether you get a variable rate card or fixed rate card is irrelevant if you pay your balance off in full each month, because you won't be paying interest. If you are someone who pays their balance off in full regularly, then you should get a variable rate card as the rates are likely to be cheaper if you don't pay off the balance.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Loans and Balance Transfer Credit Cards
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