We hope that the following tips will help you gain a better understanding of interest rates, specifically variable and fixed interest rates. An uninformed consumer, after all, is a powerless consumer. To understand the answer this question, one must first understand how the federal government affects interest rates. As you might expect, when the Federal Reserve raises the discount rate, banks pass this rate increase on to consumers. In regard to credit cards, this is typically accomplished by banks raising their prime rate.
All credit cards offer either a fixed interest rate or a variable interest rate.
A variable rate card is directly tied to the prime rate. Credit card rates are usually higher than the prime rate. The difference between the prime rate and the actual rate of a given card is called margin. A fixed rate card, however, is not tied directly to the prime rate. This is a common misunderstanding among card holders.