Fixed vs. Variable Credit Card Interest Rate: What's the Difference?

It's more than just whether your interest rate changes

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When you have a credit card, if you don't pay your balance in full each month, you'll pay interest on any balance you carry beyond the grace period. That interest, which is assessed in the form of a finance charge, is calculated based on the credit card’s interest rate, either variable or fixed.

The majority of credit cards you’ll encounter will likely have variable interest rates, but the two types of interest rates differ in a few ways. Understanding the type of interest rate you have can help you know when to expect any interest rate changes.

What's the Difference Between Fixed and Variable Interest Rates?

Fixed Interest Rate Variable Interest Rate
Usually stays the same Changes over time
Tied to your payment history, promotions, etc. Tied to the economy's index rate
Credit card issuer must notify you of any rate increase Credit card issuer does not need to notify you of rate change

How the Rate Is Determined

A fixed interest rate, or fixed APR, doesn’t change based on an index rate, but it can change for other reasons.

For example, your issuer can change a fixed interest rate on existing balances without notice when:

  • You're more than 60 days late on your credit card payment.
  • You had a promotional rate that ended.
  • You completed a debt management program.
  • Your Servicemembers Civil Relief Act interest reduction ended

A variable interest rate, on the other hand, changes over time. These are tied to another interest rate, known as an “index rate,” which tends to rise and fall along with the economy. When the Federal Reserve raises or lowers interest rates, a change to your credit card rate will typically follow, as most issuers calculate rates based on general market rates. 

Most variable interest rates are a certain number of percentage points above the index rate. The difference between the two rates is called a “margin.” For example, if the margin is 14.49% and the index rate is 3%, your credit card APR would be 17.49%.

If you have a variable interest rate, your credit card agreement will describe the margin and the index used to calculate your APR. Paying attention to the index rate will give you a clue about how your credit card rate will move.

Rate Change Notifications

With a fixed interest rate credit card, your credit card issuer must give you 45 days of advance notice before the increase becomes effective.

Once you receive the interest rate increase notification, you're allowed to opt out of the interest rate increase and pay off your balance at the old interest rate. You don’t have to accept the rate increase, but your credit card issuer may close your credit card if you choose to opt out.

Important

Having a closed credit card could hurt your credit score by affecting your overall credit utilization, which compares your credit card balances to your available credit.

If you don't opt out, the issuer applies the new interest rate to new purchases starting 14 days after the notice is sent.

However, if you have a variable interest rate card and the index rate increases, the credit card issuer does not have to notify you before the rate change is implemented. This is because variable interest rates are assumed to change frequently over time.

Which Is Right for You?

Keep in mind that you can't control whether you have a fixed or variable interest rate—the credit card issuer determines it. But you can control the amount of interest you pay by paying off credit card purchases during your credit card’s grace period.

Tip

Some credit cards offer a payment plan feature that allows you to pay off purchases or take out a loan and repay with fixed installment payments. These options give you a more predictable payment schedule while keeping your interest rate fixed.

The biggest advantage of a fixed interest rate is that your credit card issuer typically has to notify you before raising your rate. If you feel that rate is too high, you then have the opportunity to opt out.

A variable interest rate gives you a chance to save money on interest when rates go down, but you can’t reject a rate increase if you feel it’s too high.

Having a card with a fixed APR does not necessarily mean you will be paying a lower rate than you would on a card with a variable APR. Depending on the index rate, you could pay lower interest at some points and higher interest at others.

The Bottom Line

Fixed and variable interest rates are two different types of interest rates you might encounter when using credit cards.

Most have a variable interest rate, which means the rate changes based on an economic index rate. Those with fixed interest rates, on the other hand, don't change as frequently. If they do, your credit card issuer is required to notify you in advance. When a variable-interest-rate credit card's rate changes, your issuer isn't required to let you know.

The best way to avoid racking up interest—no matter which type of interest rate your card uses—is by paying off your balance in full each month.