Home Members Tools Credit Cards
   

  • One Credit Card, Multiple Interest Rates

    The interest rate, or APR (annual percentage rate), is one of the most important credit card features because it impacts what you pay for carrying a credit card balance from one month to the next. But, credit cards have more than one APR that you should know about.

    Five Types of Credit Card APRs

    Purchases APR: The purchases APR will apply to most of your transactions. This is the APR that applies when you swipe your credit card or make online purchases.

    Balance Transfer APR: This interest rate applies to balances you transfer to your credit card. The rate is often the same as for purchases, but itís not odd for balance transfers to have a different interest rate.

    Cash Advance APR: The cash advance APR is typically the highest APR on your credit card. It applies to cash withdrawals from an ATM or transactions made with convenience checks. If your credit card is used for overdraft protection, those overdraft transactions may be treated as a cash advance. Cash advance transactions different from other transactions because they never get a grace period during which you can avoid paying interest.

    Promotional APR: Credit card issuers often have promotional APRs for purchases, balance transfers, or both for at least the first six months of the cardís opening. Promotional rates are typically less than 5% and often as low as 0%. Note that you can forfeit your promotional rate if youíre late on your credit card payment.

    Penalty APR: The penalty APR is enacted whenever you default on your credit card terms. Itís the highest APR on a credit card, often topping 25%. Delinquencies of 60 days or more trigger the penalty APR on most all credit cards. The penalty rate might also be triggered if you go over your limit, have a payment returned, or default on another account with that bank.

    Balances With Different Interest Rate

    Itís possible to have multiple balances on your credit card that are all being charged different interest rates. For example, you might have $100 in purchases as 10.9%, a $500 balance transfer at 2.9%, and a $300 cash advance at 18.9%. Paying off an account like this can be tricky if youíre not paying the entire balance in full at once.

    By law, credit card issuers must apply any payment above the minimum to the balance with the highest interest rate.

    However, if youíre just paying the minimum, chances are youíre only reducing the balance with the lowest interest rate. The law doesnít specify to which balance credit card issuers must apply the minimum payment, but issuers often apply the minimum payment toward the lowest rate balance. Meanwhile, no payment has been applied to the highest interest rate balance which is increasing quickly because of the higher finance charges.
    Itís best not to mix balances with different interest rates on the same credit card. So, if you already have a purchases balance on a credit card, donít take out a cash advance on that same APR. Your card issuer may tempt you with a low-rate balance transfer offer, but taking it may cost in the long run if you already have a higher rate balance on that credit card.

    If you already have credit card balances with different APRs, send more than the minimum payment so you can reduce the highest rate balance quickly

    Fixed vs. Variable Interest Rates

    These days, most credit cards have variable interest rates, which are tied to an underlying index, like the Prime rate or LIBOR. A variable interest rate may move up or down as the index changes and the credit card issuer doesnít have to give you an advance notice of the rate increase.

    Credit card issuers are allowed to change the APR on a fixed rate credit card. However, theyíre required to give 45-day advance notice before for the rate becomes effective. In that time period, you can reject the rate increase by sending a letter to the address on the rate increase notice.

    Know Your Rates

    For your existing credit card, you can find the APRs on your monthly billing statement. Your statement will also show the balance and finance charge for each APR. The credit card disclosure that accompanies credit card offers will tell you the APRs you can expect with a new credit card.

    Source: FederalReserve.gov
  • Disclaimer

    Information in these articles is brought to you by Finance Globe. Banks, issuers, credit card, and other companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles and is further subject to our terms and conditions.
  • Recent Headlines and Articles

    ChrisB

    Car Loan Questions: Whatís on your Mind?

    It does not matter if you are buying a new or used vehicle, you have two options when it comes to finalizing the transaction. Make the purchase in full with cash, or opt for a car loan that you can payoff... read more
    ChrisB October 30th, 2014, 09:07 AM
    ChrisB

    What are your Retirement Goals? You Should Know the Answer

    Most people say they want to retire by a particular age, such as 62, and automatically assume that this is good enough. However, many realize after some time that they are not on track to do so.

    One of the best ways... read more
    ChrisB October 29th, 2014, 09:13 AM
    ChrisB

    3 Big Benefits of a Money Market Account

    Money market accounts are a popular choice among those who are looking to save money without taking any risk. From local financial institutions to online banks, opening one of these... read more
    ChrisB October 28th, 2014, 09:02 AM
    ChrisB

    3 529 Savings Plan Mistakes to Avoid

    With the cost of college on a rise, a growing number of parents are researching the pros and cons of a 529 savings plan. This allows you to save money for your childís college, all in an account that is not subject to federal income... read more
    ChrisB October 27th, 2014, 09:41 AM
    ChrisB

    Overlooked Benefits of Online Banking

    Many years ago, nobody would have given online banking a second thought. In todayís world, with so much advanced technology, this is something millions of people have fallen in love... read more
    ChrisB October 23rd, 2014, 09:20 AM
    ChrisB

    3 Alternatives to Traditional Retirement Saving

    When it comes to saving for retirement, you know one thing to be true: more is always better. While this may be the case, some people donít have enough time or earn enough money to reach their goals.
    ... read more
    ChrisB October 22nd, 2014, 09:27 AM
    ChrisB

    5 Ways to Save More for Retirement

    Is retirement age closing in on you in a hurry? Are you worried that you donít have enough money to hang up your work boots for good? If you find yourself in this position, you can take comfort in knowing that you are not alone.... read more
    ChrisB October 21st, 2014, 08:38 AM
    ChrisB

    The Cost of Upgrading your Companyís Technology

    As a small business owner, you likely understand the importance of technology. Some companies are ahead of the times, while others are lagging behind and looking for a way to catch up.

    If you feel that now... read more
    ChrisB October 20th, 2014, 09:53 AM
  • Recent Article Comments

    Wanderer

    What are your Retirement Goals? You Should Know the Answer

    As a retiree I can say finding ways to set aside money and survive life's many ups and downs is a... Go to last post

    Wanderer October 30th, 2014 03:37 AM

 

 

 

Credit Cards | Finance Social Network | Credit Card Reviews | Markets
About Us | FG on the Web | Sitemap | Privacy | Terms | Contact


Copyright © 2014 Finance Globe. All rights reserved.