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2 years, 5 months ago

Why would a bank get rid of fixed rate credit cards and only offer a variable rate credit card?

I just got off the phone with my credit union, who offered me a credit card with a variable APR of 7 to 17 percent. When I asked what their fixed rate cards were at, she said they did away with fixed rate cards altogether at a board meeting this December. Why would they simply stop offering fixed rate cards? I assume they only do things that make them more money, which means the variable rate would take more out of my pocket, assuming I carry any kind of balance.
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opher | 2 years, 5 months ago
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Under the new Credit card Accountability, Responsibility, and Disclosure (CARD) act, among other changes, annual percentage rates (APRs) on existing balances cannot be changed unless you do not make your minimum payment within 30 days after the due date. Thus, no matter your balance, if the APR is fixed, as long as you are on time with minimum payments (or even late by no more than 29 days) the issuer cannot raise the rate on that balance even if the market rate increases radically, in which case, the issuer would lose money. However, if the rate is variable, the issuer can (and will) update your APR monthly by the change in the index to which the APR is tied, usually the so-called Prime Rate, or the London Inter-Bank Overnight Rate (LIBOR). From this you can see why issuers would prefer to move away from fixed APRs.
source(s):
http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-Am...
http://banking.senate.gov/public/_files/051909_CreditCardSummaryFinalPassag...
http://www.opencongress.org/bill/111-h627/show

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kareul | 2 years, 5 months ago
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You are right the banks want to make more money, with a variable rate credit card, the variable APR can change at any time. A fix rate credit card can also change but you need to be notified prior to the change.

http://www.asapcreditcard.com/articles/variable-vs-fixed-rate-cards.html
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