Fixed rate credit cards vs. Variable rate credit cards

When deciding on which types of credit cards to carry, it is worth taking into account the differences between fixed rate cards and variable rate cards. Both types of credit cards offer advantages to the users, but only in certain situations.

Fixed rate credit cards

Fixed rate cards are essentially credit cards where the APR is fixed at a flat rate. If you're after credit cards where you can be certain of how much interest you're going to owe on your balance each month, fixed rate could be the answer.

Using fixed rate credit cards mean that every month where interest is applied to the balance on your credit cards it will be applied at the same rate. Even if there is a significant fluctuation in the base interest rate - a rate that all credit cards are inextricably linked to - you'll end up being charged interest at the same rate as the previous months under your fixed rate agreement.

In times when the economy is uncertain and the Bank of England is intent on increasing the base interest rate, fixed rate credit cards are a boon. For the length of the fixed rate guarantee given by the credit cards issuer (normally the life of balance transfers), you'll pay only interest at the fixed rate agreed.

Compared to variable rate credit cards, where the APR would climb in response to increases in the base interest rate, fixed rate cards cannot be beaten.

Against 0% balance transfer cards, fixed rate credit cards compare very favourably too. On debts of £1500 for instance, fixed rate credit cards at just 5.9% would save users a staggering £700 in interest payments when judged alongside 0% balance transfer cards that are free of interest for the first 9 months, but charge 12.9% interest thereafter.

Variable rate credit cards

Variable rate credit cards are cards where the APR is fluid. This means that the interest applied to the balance changes in response to fluctuations in the base interest rate.

In an economic climate where the base interest rate is likely to climb, variable rate options are a risk. However, in times when the base interest rate level is high, but on a downward trend, these offers are the best types of credit cards to have. This is because your debt will end up costing you less than if you were to arrange to pay off the balance on fixed rate credit cards, where the fixed rate does not fall in line with the base rate.

Currently, interest rates in the UK are at a low and relatively stable level. This means that on the face of it neither variable rate nor fixed rate cards are any more riskier than the other.

However, if you've got outstanding debts on existing credit cards NOW is the best time to take action! By moving your debts to fixed rate credit cards with low APRs, you'll 'lock-in' a low interest rate on your existing credit cards debts for the life of those debts. Do this and you'll end up saving yourself a lot of money on your repayments - guaranteed!