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Is Your Credit Card Interest Rate Better Than Average?

Last Updated: March 15, 2022
4 min read

Let’s Learn About: Average Credit Card Interest Rates

  1. Credit card interest rates are expressed as a yearly rate, known as the “annual percentage rate,” or APR.

  2. The best credit card interest rates go to people with a good credit history and credit score

  3. A credit card may have different interest rates for purchases, cash advances and other types of transactions.

What’s a good credit card interest rate?

If you’re in the market for a new card, comparing credit card interest rates is important. But you might be wondering: what is a good credit card APR? The Federal Reserve reported an average credit card interest rate of 16.45% for 2021.

The best credit card APR is 0%, which means you would pay no interest. This rate is generally available only as an introductory offer to new applicants for a credit card, and a 0% intro APR offer can apply to purchases, balance transfers or both.

How do credit card interest rates work?

Your credit card interest rate is expressed as a yearly rate, known as the annual percentage rate (APR). If your credit card has an APR of 15%, it will have a daily rate of 0.041096%. Interest is calculated daily and added to your balance, and the next day’s interest is calculated on the new balance. At the end of the billing period, the interest you owe is the sum of the billing period’s daily interest charges.

Let’s say your credit card balance is $1,000 at the 15% APR standard interest rate. The next day, interest is added, and the balance becomes $1,000.41, plus any additional purchases and minus any new credits or payments. This process occurs each day until the end of the cardholder’s monthly statement cycle. At the end of the month, the beginning $1,000 balance becomes $1,013 when interest charges are applied at 15% APR.

Can one credit card have more than one interest rate?

A single credit card might have multiple APRs. For example, the “introductory” APR on a new card offers a low rate for a set amount of time. The introductory rate might be 2.99 percent for six months, and 17 percent after. Credit card companies are required to disclose the rate after the introductory offer expires, so read the fine print. Introductory and promotional rates can also apply to other balances, like balance transfers. When taking advantage of these offers, consider the balance transfer fee. For example, a promotional APR of 2.9 percent might have a one-time 3 percent balance transfer fee. So be sure to factor in these costs as well when making your decision. Lastly, your card might have different APRs for new purchases, cash advances and other types of transactions. 

Fixed vs. variable interest rates

Most people think about houses and cars having fixed rates, and credit cards having a variable interest rate. But in fact, credit cards might have either one. A variable rate changes with an indexed interest rate, such as the Prime Rate published in The Wall Street Journal. In contrast, fixed rates are not tied to an index. That doesn’t mean they can’t change though. Credit card companies can still increase the rates on a fixed card; they just have to provide written notice ahead of time. Some credit cards have a fixed APR, but only for a defined period of time. For example, an introductory rate may offer a fixed low APR for a set period. Once the term is up, the APR reverts back to a variable rate. Your cardholder agreement should disclose when and how your APR can change.

What is the highest credit card interest rate allowed?

The only federal limit to the APR a credit card can charge applies to active duty service members. Otherwise, there would only be a maximum credit card interest rate if the state where the credit card was issued had a limit for credit card interest rates.

How can I compare credit card interest rates?

Before selecting a new card, it might be helpful to compare interest rates. You can find each card’s interest rate or range of interest rates on the credit card issuer’s website, but keep in mind that the specific interest rate you receive will depend on your credit score and credit history.

Comparing low-interest credit cards

You might assume that comparing intro APR offers would just require looking for the lowest interest rate. However, if you plan to carry a balance, you’ll also want to look for a low rate that lasts longer. If you carry a large balance, 1.99% for 12 months saves more money than 0% that increases to 18% after six months.

When are credit cards interest rates less important?

If you don’t typically carry a balance, you can be less concerned with comparing credit card interest rates. Rewards and other fees might be more important considerations than your interest rates. For example, cash back rewards drive down your overall cost, allowing you to receive money back for using your card. Other money saving benefits, like supplemental travel insurance and discount marketplaces, are also helpful when comparing cards. And let’s not forget the annual fee. After all, nobody is thrilled to pay an extra $50, $75 or more annually. So read over the terms of your cardholder agreement carefully, which discloses all fees, including fees for late payments, foreign transactions, over limits, balance transfers and more.

How do I qualify for a good credit card interest rate?

The best credit card APRs go to people who have a good credit score and history. Using credit responsibly is the best way to build a good credit history: pay bills on time, don’t use a large percentage of your available credit, and don’t apply for too many credit cards at one time.

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