Benefits And Drawbacks Of A Variable Rate Card
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Benefits and Drawbacks of a Variable Rate Card
When choosing a credit card, you'll likely encounter two main options: variable rate and fixed rate cards. Fixed rate cards are straightforward, but deciding if a variable rate card suits you can be challenging. Here’s a breakdown of the benefits and drawbacks of variable rate credit cards to help you decide.
Understanding Variable Rate Cards
A variable rate card features an interest rate that fluctuates along with the Bank of England’s base rate. The card issuer adds a percentage to this base rate. For instance, if the base rate is 4% and the issuer adds 5%, your interest rate will be 9%. Any change in the base rate will affect your interest rate.
Costs of a Variable Rate
Variable rate cards often offer lower costs compared to fixed rate cards. However, there's a risk that rates may increase over time. Fees and terms vary by issuer, so it's crucial to compare options to find the best fit for you.
Current Interest Rate Trends
Currently, variable rate cards are a smart choice because interest rates have been low or declining for the past decade. While future hikes are possible, significant increases typically occur gradually, over a year or more. Although relying solely on market trends isn’t advisable, the current climate is favorable for variable rate cards.
Fixed Rate Cards
While variable rate cards can offer lower rates, fixed rate cards provide stability, ensuring your interest rate remains unchanged for a set period. If you prefer the peace of mind that comes with consistent rates, a fixed rate card might be the way to go. Plus, if interest rates rise, you’ll benefit from the locked rate.
Paying Off Your Balance
Whether you select a variable or fixed rate card becomes less significant if you pay off your balance in full each month, as this means you won't incur interest charges. If you consistently clear your balance, opting for a variable rate card could be beneficial, potentially offering lower rates.
In summary, both variable and fixed rate cards have their advantages. Your choice should align with your financial habits and the current economic climate.
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