Is a Low Interest Rate Credit Card Right for You?

When it comes to interest rates, the lower the better. Right?  

It depends on your financial situation and your goals. 

A low interest rate credit card may be the ideal choice to save money on interest, but it can have trade-offs that may not be worth it for everyone. Read on to learn how low interest rate cards work, how to determine if a low interest rate credit card might be right for you and how to find a low interest rate card that meets your needs.  

What are the benefits of a low-rate credit card? 

Let’s start with the basics: Why you should consider a low-rate credit card in the first place. In a nutshell, the lower your interest rate, the less interest you’ll pay on the balance on your card.  

If you have a low interest rate card — or transfer a balance from a higher-rate card to a low interest rate card — you’ll spend less on interest each month. As a result, you’ll have more money in your budget to pursue other goals, including the option to use that money to pay down your debt faster. 

Let’s take a look at how it can work in practice:  

Result: Save $4,733.13 on interest over the lifespan of the debt and shorten repayment by nearly four years.  

Factors to consider when selecting a low-rate credit card 

Take these into account when you’re choosing the right card for you. 

1. The interest rate on the card 

As the name suggests, you’ll generally pay less interest with a low interest rate credit card vs. a standard credit card. But there are two types of low-rate cards, each with their own benefits and considerations 

Fixed rate cards 

With a fixed rate card, you’re locked into a low interest rate over the lifespan of the card. A fixed rate makes it easier to budget, since you’ll be able to calculate your interest charges easily. You’ll also gain peace of mind, knowing the card’s rate won’t vary because of market volatility.  

Variable rate cards 

A variable rate card, on the other hand, has an interest rate that varies along with the market. When interest rates are low, you may be able to get a lower rate than you would with a fixed-rate card. The rate is also personalized to you, so you may be able to secure a lower rate if you have great credit.   

Pro tip: Some credit cards have separate interest rates for purchases and cash advances, so make sure you understand the interest you’ll pay depending how you use your card.

2. Other fees included in the card 

Make sure you understand the total cost of using the card that adds to the cost of borrowing. These can include:  

•  Annual fees

•  Balance transfer fees  

•  Cash advance fees  

•  Foreign transaction fees  

•  Returned payment or dishonoured payment fees 

•  Over-limit fees.   

As you compare low interest rate credit cards, reflect on how you’ll likely use the card to estimate the total cost of each card, so you can make an informed decision about what’s right for you.  

3. The rewards you’ll earn with the card 

The primary benefit of a low-rate card is the ability to save money on interest. As a result, few low-rate cards offer extensive rewards programs like you’d find with pricier rewards cards. However, some cards do come with perks that will help you earn more for each dollar you spend.  

These could include:  

• The ability to earn points that can be redeemed for merchandise or travel perks  

• Access to exclusive discounts and promotions through the card issuer’s offer program.   

• Purchase security or extended warranty insurance, which may protect your purchases from loss, theft or damage for a period of time after the transaction, or extend a manufacturer’s warranty.   

• Optional services, such as travel insurance or protection against identity theft, which you can add on to your card.    

How to decide if a low interest rate credit card is right for you 

Ultimately, choosing a credit card is a personal decision — one that depends on your unique goals and financial situation. However, a low-rate card may be helpful for you if:  

1. You carry a balance on your credit card   

The higher your balance, the more you stand to save by switching to a card with a lower interest rate.  

2. You’re struggling to manage debt across multiple credit cards   

Transferring the balances from multiple higher-rate cards onto one low interest rate credit card can help make your debt feel more manageable, consolidating several monthly payments into one payment.   

3. Rewards aren’t your top priority when selecting a card   

If maximizing your rewards is most important to you, consider seeking out a rewards credit card, instead.  

Find a low interest rate credit card that meets your needs 

RBC offers a range of low interest rate credit cards, including fixed and variable rate cards, to suit a range of needs. Learn more about the low interest rate credit cards available, and get started with your application, by visiting us online.  

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