Is a variable rate ever in my best interest?

Not all variable rate credit card programs are bad or unethical. Most BANK programs are still unethical in this area, due to the huge margin added to an index, typically prime rate. But this is not the case for credit union variable rate programs. Variable rates can actually work to your advantage in our current environment. These are the characteristics to look for in an ETHICAL variable rate program:

Is the rate based on prime? As of November 2009, prime rate was 3.25%. What is the “spread” for the rate? Most credit union variable rate cards will post “prime + 5% up to 10%, which would give you a rate TODAY of 8.25% to 13.25% and will be dependent on your credit score.

Now, our friendly bankers are currently offering variable rates of prime + a range of margins which can make your existing rate 29.99% or higher. The prime rate is at an all time low, so where is the logic in this? A credit union’s variable rate will rarely exceed 18% due to federal regulations.

Another variable factor to look for is HOW often the card issuer may be changing the variable rates. You may find some change monthly, quarterly, annually or at time of reissue.

Should the prime rate jump back up to the 7%-9% range, this is when a variable card would NOT be in your best interest. Even at credit unions, this could cause your credit card rate to jump above 20%. So be careful! Some consumers just may be better off locking into a fixed rate program now.

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