I review dozens of credit card offers each week to find the best deals. I don’t work for any credit card company, and I’m not trying to sell you anything. But I do want you to learn something: how to effectively use credit cards. Check out my credit card page.
The first rule of credit cards: Never carry a balance, never incur interest charges. Of course, that’s not always realistic. In fact, surveys – like this one from Consumer Reports in December – show that more than a third of all cardholders carry a balance from month to month.
Just like any other type of loan, if you borrow from your credit cards, even occasionally, you should always look for the lowest interest rate.
How to find a card with the lowest interest rate
To find the lowest rate – or annual percentage rate, also known as APR – you must first understand how credit card interest rates are determined. Nearly every card has a variable interest rate that’s tied to the prime rate. Since October 2008, the prime rate has been 3.25 percent, although it’s been as high as 8.25 percent as recently as mid-2006.
Therefore, the lowest rate you find today can go up tomorrow if the prime rate does.
Another important factor: Banks offer a range of rates for each card, with new applicants being assigned a rate based on their individual credit score. Unfortunately, there’s not a lot of transparency in this process. But as a general rule, the lower the range of rates being offered, the lower the rate you can expect to receive. For example, you’ll normally do better with a card with rates ranging from 10 to 15 percent than one with rates ranging from 12 to 17 percent.
The top 5 cards with the lowest interest rate
1. Simmons First Visa Platinum. Arkansas bank Simmons First offers an industry-leading rate of prime plus 4 percent on its Visa Platinum card. Better yet, it offers this top rate to everyone approved for this card. And there’s no annual fee. Obviously, however, only applicants with high credit scores will be approved.
2. IberiaBank Visa Classic. This Louisiana bank is tied with Simmons First for the lowest rate offered: prime plus 4 percent. Unfortunately, less-qualified applicants will receive higher rates equal to prime plus 7 percent or even 10 percent. Iberia also offers a promotional balance transfer APR of 1.99 percent for six months, with a 2 percent balance transfer fee. Other IberiaBank cards, such as its Visa Select, offer a competitive yet slightly higher rate, but with no promotional balance transfer offer. There’s no annual fee for any of these cards.
3. PendFed Promise. PenFed isn’t a bank – it’s the Pentagon Federal Credit Union. Membership is open to employees, retirees, family, and household membership from a broad list of military and government organizations. Alternatively, anyone can join with a small, one-time donation to a military support charity. Joining is worth it, as their Promise card offers one of the best deals going. This card comes with a three-year promotional APR that’s fixed at 7.49 percent, followed by a standard variable APR equal to prime plus 6.74 percent. On top of that, the “promise” part of this card is no fee for balance transfers, foreign transactions, cash advances, late payments, or annual fees.
4. US Bank Visa Platinum. By offering a standard APR as low as prime plus 6.74 percent, US Bank comes in ahead of all the major national banks with its Visa Platinum card. At the same time, less-qualified applicants will receive rates as high as prime plus 20.74 percent. All approved applicants will receive a zero-percent promotional balance transfer offer for 12 months, but with a 4 percent balance transfer fee. There’s no annual fee.
5. Wells Fargo Platinum. This well-known name in banking offers its Platinum Visa card with a standard APR as low as prime plus 6.9 percent, but only for the most qualified applicants. Those with lower credit scores can expect to receive a rate as high as prime plus 21.74 percent. This card does feature a zero-percent promotional finance rate on both purchases and balance transfers for six months, but there’s a 3 percent balance transfer fee. There’s no annual fee.
Shopping for the lowest credit card interest rate isn’t easy, but your efforts will pay off. By finding the card with the best combination of low interest rates, promotional financing, and low fees, you can be assured that when you do have to pay credit card interest, you’re paying as little as possible.
Of course, the best way to save money on credit cards is to hike your credit score, which means you’ll get better offers from credit card issuers. For that, check out 3 Tips to Raise Your Credit Score – Fast.