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The Importance of Interest Rates
  • People with credit cards know how important interest rates are. They can make a difference especially when a person is in credit card debt, or has to pay off a bigger amount of money. There are only a few cases when people are not preoccupied by interest rates; the most people try to look for credit cards with a low interest rate. Besides the initial interest rate, there are some other important things people should check before choosing a certain type of credit card.

  • Many people know that they should choose the credit card with the lowest interest rate, but they do not know that interest rates can change over time. Actually there are several types of interest rates, but banks always advertise the smallest one. The first type is the initial interest rate. This is in the advertisements and TV commercials, because it is very low. These advertisements offer a good interest rate on transferred balances, or for a limited period. The problem is that the period of the initial interest is only on the small prints, so only a few people are aware that the interest will change quite soon. These credit cards could be a good choice for people who plan to transfer their balance and pay it off in a short period of time, but they all should be aware of the date when the interest rate will change. Otherwise they will end up paying a much higher interest rate, because in this situation the bank is not obliged to announce clients about the change, since it is stipulated in the contract, in the fine prints.

  • Another type of interest is variable rates. To understand this concept, a little explanation is required. Variable interest rates are calculated based on the Annual Percentage Rate (APR) and the rate at which the banks borrow money (prime rate). In this case, the rate is calculated like this: they add the prime rate and a certain percentage, which differs from one bank to another. People, who choose this type of credit card, should be aware that the interest rates will change in time, basically because the prime rate will move up or down when the Federal Reserve Board changes it. People should not be too worried when choosing this interest type, because the changes are usually minor ones, except if the economy is in a critical situation. In that case bigger changes could happen. The good part is that the bank will announce its customers in time about the interest rate changes, whatever the change’s direction is.

  • The last type of interest rate might seem the safest for people: fixed rates. Although it is called fixed interest rate, the truth is that it is fixed only for a period of time. These interest rates usually are not the lowest from the three types, but they offer some security and peace of mind to customers. It is important to note that whenever the bank changes the interest rates, it is obliged by the law to announce the clients 15 days prior to the change, so the client has time to think about if he wants to be the bank’s client after the change or not.

  • In some cases interest rates do not matter at all to credit card holders. This is the lucky case when the owner pays off the bill at the end of every month. Since banks offer a period when the bill can be paid off without interest, the client can pay back his charges without paying anything additional. Most of the credit card holders do not belong to this type, so people should pay attention to interest rates and choose their credit cards according to their needs. It is also very important to read the contract before signing, paying special attention to the fine prints, because that is the place for the most important information!