Are you as smart as your car? Test your knowledge of auto technology with this quiz.
by Sid Kirchheimer, AARP Bulletin, November 20, 2009
Q. My credit card was switched from a fixed to a variable interest rate “for my benefit.” True?
A. Yes, for now, because the rates are down. A variable interest rate is usually set by adding percentage points to the prime rate or a Treasury bill rate, so cardholders carrying a balance have benefited as the troubled economy has driven these rates to historic lows.
But in the big picture, the answer is no. The reason that millions of cardholders are being switched—predictions are that 87 percent of cards now have variable rates, up from 66 percent last year—is that card-issuing banks will eventually benefit more than customers.
Three reasons why:
• As the economy improves, the prime rate will certainly increase, pushing up a card’s variable interest.
• Unlike fixed-rate cards, variables are exempt from key provisions of the consumer-protecting Credit CARD Act of 2009. One provision requires card issuers to give at least 45 days’ notice before raising interest rates on cards with existing balances.
• With a variable rate, cardholders cannot opt out of an interest rate hike and pay off outstanding balances at their original rate. That’s another provision of the CARD Act that applies only to fixed-rate cards.
Sid Kirchheimer writes about money and consumer issues.
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