Fixed vs. Variable APR Credit Card Interest: Which Is Better?

Key Takeaways

• Fixed APR remains consistent over time, providing predictable payments, while variable APR fluctuates based on index rates like the prime rate.
• Fixed APR credit cards can still change rates after the first year, with issuers allowed to increase interest rates with 45 days’ notice.
• Most cardholders choose variable APR cards as they are more available and offer better rewards, welcome offers, benefits, and sometimes 0% introductory rates.

Your credit card’s annual percentage rate (APR) is the yearly interest rate that you pay when you carry a balance on your credit card. A credit card’s APR can either be fixed or variable, though most credit cards offer variable rates.

If you have the option to get a fixed APR credit card, should you? Maybe, if it’s a low APR. But the best option is to not pay credit card interest at all. Read on to learn about fixed vs. variable APR credit cards, how they work, and how to minimize credit card interest whether you have a fixed rate or not.

Fixed vs. Variable APR Credit Cards

The difference between fixed and variable APR credit cards is in how your interest rate changes. With a fixed-rate credit card, your interest rate usually doesn’t change without notice, but with a variable-rate credit card, it can fluctuate depending on market rates. 

You can find out whether your credit card is fixed or variable by reading your credit card’s disclosure box, also known as a Schumer Box, in your card’s terms and conditions document. It will list your card’s APR and what the rate is based on. Your current APR is listed on your monthly statement — usually in a section titled Interest Rates and Interest Charges.

You’re looking for a phrase like: “19.99% based on your creditworthiness. This APR will vary with the market based on the Prime Rate.”

How Does a Fixed APR Credit Card Work?

A fixed-rate credit card is not dependent on market rates. With a fixed rate, your card generally keeps the same APR, so you don’t have to worry about market fluctuations changing how much you pay in interest. 

Fixed APR credit cards aren’t entirely immune to interest rate changes, though. After the first year you have a fixed-rate card, the interest rate can change … so the rate isn’t as set in stone as you might think. With 45 days of advanced notice, your credit card issuer can increase your interest rate. 

When you get a 45-day notice about a change to your card’s APR, you’ll have an opportunity to opt-out or continue at the new rate. Opting out means you’d no longer make charges on the card and pay off your balance at the old interest rate. Any increases apply to new purchases you make with the card starting 14 days after the notice is sent — not existing balances. If you opt-out, the credit card issuer may close your credit card.

Your rate on a fixed APR credit card can also increase after late payments or if a promotional rate such as a 0% balance transfer rate expires.

How Does a Variable APR Credit Card Work?

A variable APR credit card’s interest rate changes according to an index interest rate, often the prime rate. When the prime rate goes up, so does your credit card’s APR — and along with it, your interest charges. But when the prime rate goes down, your APR follows suit and you’ll pay less in interest, so it’s not all bad news.

With a variable APR credit card, a credit card issuer can change your rate at any time without warning. Unlike a fixed APR credit card, variable APR credit cards do not require a 45-day advanced notice warning to change your APR, as variable APR can change frequently over time. You should monitor your monthly credit card statement for APR changes.

Variable credit card APRs use an index interest rate plus a margin to calculate your card’s APR. For example, the prime rate is 7% and a credit card company adds a margin, something like 10% to 12% if you have good credit. Combining the prime rate and margin, your card’s APR would be 17% to 19%. 

Compare the availability, changes, and rate sources of fixed vs. variable APR credit cards:

When Can Credit Card Interest Rates Rise?

A credit card company can raise (or lower) your card’s interest rate if you have a variable APR card or with 45 days of advanced notice on a fixed APR card. During the first year with a fixed APR credit card account, the issuer generally can’t increase the rate on new transactions.

The interest rate can’t be increased on an existing balance, except when you have a variable APR, a temporary (usually promotional) rate expires, or your minimum payment is at least 60 days late.

After a credit card company increases the interest rate on a fixed APR card, it generally has to reevaluate your account’s interest at least every 6 months. Typically, the issuer will compare the rate you have to what a new cardholder with your same credit profile would pay. That could offer a rate reduction or increase.

Is a Fixed or Variable APR Credit Card Better?

The majority of credit cardholders choose a variable APR credit card. For one, variable-rate cards are more available than hard-to-find fixed APR credit cards. And generally, a variable APR card will offer more in rewards, welcome offers, benefits, and other important terms. Variable APR cards may also offer 0% introductory rates.

A fixed APR card can offer the advantage of advanced notice when your rate will change, offering you the opportunity to opt-out and pay off your balance at the old rate if you don’t want to accept the new rate. 

In a rising interest rate environment like we’re facing today, a variable APR is almost certain to increase. As your rate increases, you’ll pay more interest fees on any balance you carry.

It could be a smart move to lock in a low APR on a fixed-rate credit card to give yourself some protection against rising market interest rates. However, a fixed APR doesn’t mean the card offers a lower rate — it could start with an initially higher rate than a variable-rate card. That means you could pay more interest over time. And also keep in mind that a fixed APR card can increase your rate on new charges with advanced notice.

If you plan to carry a balance long-term, a fixed APR card at a lower rate than a variable APR card could save you money. But the challenge is finding one, as fixed APR credit cards are pretty rare. Most major credit card issuers don’t offer fixed-rate credit cards.

If you’re choosing a credit card based on whether it’s fixed or variable APR, put the most consideration on the card’s current rate, as your rate can ultimately change with either one.

Hot Tip: Fixed-rate credit cards generally don’t offer much in the way of rewards or benefits — which we’re big on here at Upgraded Points. Choosing a fixed APR credit card could mean missing out on major travel rewards.

Alternative Cards With 0% APR

Choosing between paying fixed and variable APR is like choosing between a punch in the face or the gut — neither is all that appealing. But you have other options.

A 0% APR credit card can save you on interest charges for up to 18 months on new purchases. And if you have an existing balance, you could get a 0% rate on a balance transfer credit card.

For example, the Blue Cash Everyday^® Card from American Express offers a 0% intro APR on purchases and balance transfers for 15 months from the date of account opening. After that, 19.49%-28.49% variable APR (rates & fees).

With a 0% APR credit card, you won’t rack up any interest charges during the promotional APR period. After the promotional rate expires, you’ll generally pay a variable APR on the remaining balance. 

If you’re carrying a balance and paying interest on your credit card, you’re playing a losing game whether your rate is fixed or variable. 

Hot Tip: If you’re like 25% of rewards cardholders, you carry a balance on your cards — which can quickly cancel out the value of your rewards as you pay more in interest than you earn on rewards. Consider a 0% APR credit card instead of a rewards card when you carry a balance.

What Is a Good APR for Credit Cards?

A good credit card APR falls below the average credit card APR, which is around 16% overall, including 0% cards. But the actual rate you receive for a particular card depends on the type of card and your creditworthiness. 

If you’re looking for a rewards card, cash-back cards tend to offer the lowest average APR at 18.72%. However, cash-back rewards earnings tend to top out at 5%, so you’ll easily eat up all of your rewards earnings with interest charges if you carry a balance on this type of card.

Your credit card’s APR also depends on your credit rating. If you have excellent credit, expect average credit card APRs as low as 14.68%. With fair or bad credit, averages reach 26.51% or higher.

Another factor in your card’s APR: the issuer. Some credit card issuers set lower average APRs than others. For example, Discover’s average APR is 17.49%, while Capital One has an average of 20.93%.

Keep in mind that most credit cards carry a variable APR, so even if you’re able to claim a good low APR on your card, it can fluctuate higher or lower with the index rate depending on market factors.

However, you can score a below-average APR — usually 0% — with a promotional rate. Credit cards may offer 0% interest for an introductory period to new cardholders. That gives you a chance to pay off your balance with no interest during the promotional rate period. Any balance that remains after the period expires will be subject to your variable or fixed APR.

How To Lower the APR on Your Credit Card

Whether fixed or variable, it pays to lower the APR on your credit card. In a rising interest rate environment like we’re in now, pushing down your rate can make it less expensive to carry a balance on your credit cards. Even if you don’t plan to carry a balance on your credit card, it’s still a good idea to negotiate down, just in case you need to carry a balance later.

It’s always worth it to lower your APR any way you can get it. When you lower your APR, you pay less in interest charges, which can save you money every month and make it easier to pay off your balances. The less you pay in interest, the sooner you can become debt free.

Let’s do the math on a $20,000 balance. If you have a card that charges 20% interest, you’ll pay $4,000 in interest on it each year. Get that APR down to 15%, and you’d pay $3,000 in interest, saving $1,000 annually. If you can transfer your balance to a 0% card, you’d just pay a balance transfer fee of usually 3% to 5% ($600 to $1,000 on a $20,000 transfer) and no interest during the promotional period.

Contacting Your Credit Card Company

The most important thing you can do to lower your credit card’s APR is to get in touch with the credit card issuer. Sometimes, all you have to do is ask for a lower rate. 

Call or otherwise get in touch with your credit card issuer to ask what they can do to lower your APR. Yes, that means talking to an actual human. Although you may find it uncomfortable to talk to the credit card company about your balance and interest, it’s worth the effort if you can save hundreds or potentially thousands in interest as you negotiate down your APR.

As you talk to the credit card company, understand you’re in a position to negotiate. Your business is valuable — especially if you pay interest each month — and you most likely have the option to move your balance to another credit card issuer or start making charges on a different card if you can find a better rate.

The interest you pay each month is a huge profit source for credit card companies. As long as you’re staying on top of payments, the issuer wants to keep you as a customer so it can keep those interest profits coming in. Even if it means you pay a lower rate, the credit card company should want to sweeten the deal to keep you (and those profitable interest payments) from moving on to a competitor.

When you get in touch to negotiate your APR with the credit card company:

• Be polite, clear, and firm in your request to reduce your credit card’s APR. 
• Cite your history as a customer, including a record of on-time payments and how long you’ve held the account.
• Mention competing offers with a lower rate that you’re eligible for.
• Reassure the agent that you’d like to keep your account — if the rate is right.
• Ask to talk to a supervisor if you can’t get a lower rate from the first person you talk to.

Hot Tip: Credit card rate negotiation shouldn’t be a one-time thing. You should call to negotiate on a regular basis — every year or so — to keep your credit card’s APR as low as possible.

In addition to direct negotiation, try these methods to reduce the APR on your credit card:

• Make Payments on Time: Payment history is a huge factor in your creditworthiness and making on-time payments each month shows you’re a low-risk borrower worthy of a lower rate.
• Lower Your Credit Usage: Using less of your available credit helps by reducing your credit utilization ratio (how much of your available credit you’re using), which is another major creditworthiness factor. And with lower usage, you’ll have a lower balance subject to interest charges.
• Get a Higher Credit Limit: Ask for increased credit lines on any other credit cards you have. This might sound counterintuitive, as a higher credit limit opens the potential to charge more and pay more interest if you can’t clear your balances. But the intention here is not to use the higher limit. Rather, you want to get a higher limit as another way to lower your credit utilization ratio and make you a more creditworthy customer.
• Improve Your Overall Credit Rating: Other factors can improve your credit, such as taking out a long-term loan and making consistent on-time payments, or eliminating a collections account. You should regularly check your credit report and fix any errors that can damage your credit rating.
• Shop Competitor Offers for a Lower Rate: Credit card issuers put out new offers constantly. Look at other credit cards and consider getting a different card to use if it can offer a lower rate than what you’re using now.
• Get a Promotional APR: If you have a credit card balance you’d like to wipe out interest-free, or if you need to make a major purchase on a credit card, it’s better to do it on a 0% card than try to pay it down with interest. Move your existing credit card balance to a 0% balance transfer card or get a 0% APR card for new purchases so you can have time to pay it off before interest charges apply.

Hot Tip: See what credit cards are available to you by checking for prequalified offers. Looking at these offers doesn’t affect your credit score and can give you an idea of the cards (and terms including APR) that you’re likely to be approved for.

Final Thoughts

It’s never a good idea to carry a balance on your credit cards — especially if you’re trying to earn rewards. But if you do carry a balance, a fixed-rate card at a low APR could help you save on interest long-term compared to a variable-rate card at a higher APR. Still, before you lock in a fixed APR card, consider alternatives, such as paying your balance in full each month, negotiating a lower rate with your current credit card, or getting a balance transfer or 0% card.