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Interest rates are a key feature of many credit cards and play a big part in the potential fees you may be charged for carrying a balance.
If you already carry a balance on your credit card, you're likely being hit with high interest charges that make it harder to pay off debt. The average APR for all credit card accounts is 14.87%, and rises to 16.88% for accounts assessed interest, according to the latest data from the Fed. But APR can be near 30% for some accounts, especially for consumers with bad or average credit (scores below 670).
Below, CNBC Select breaks down what you need to know about interest rates and how to find the lowest interest rates for credit cards.
Card issuers refer to your credit card's interest as your annual percentage rate (APR). An APR is the interest you're charged for borrowing money against your credit limit.
In most cases, you won't be charged interest if you pay off your credit card balance on time and in full each billing cycle. This applies to new purchases and typically excludes other transactions, such as balance transfers and cash advances, which often incur interest charges right away.
While card issuers express your interest rate annually, you can find the monthly interest rate, if you divide your APR by 12.
Let's say you have an 18.74% APR: Divide by 12 to get 1.562% as your monthly interest rate. This means that whatever balance you carry on your credit card account will be charged a fee of 1.562% in addition to your payment. If your account balance is $3,000 during the month of July, you will pay $46.86 in interest for that month.
Credit card APRs come in two forms — variable and fixed.
A fixed APR doesn't change with the prime rate. Card issuers can still change your APR, but they need to notify you at least 45 days prior to making the change.
Many of the best low interest credit cards are from credit unions. If you don't mind jumping through a few minor hoops, you can benefit from lower than average interest rates, compared to major card issuers.
Credit union cards typically require you to become a member, but many don't charge a fee to join and offer various qualification options, such as residence or employer.
For example, the Titanium Rewards Visa® Signature Card from Andrews Federal Credit Union has a low 9.49% to 16.49% variable APR and requires membership to Andrews Federal Credit Union. But anyone can join by meeting the qualification requirements or opting to join the American Consumer Council (ACC) for free with the promo code "Andrews."
3X points on gas and grocery purchases and 1.5X points on all other purchases
Earn 10,000 points when you spend $1,500 within the first 90 days
N/A for purchases and balance transfers
9.49% to 16.49% variable
Balance transfer fee
1.50%, $50 minimum
Foreign transaction fee
You can also consider credit cards that offer no interest periods on purchases or balance transfers. The Citi Simplicity® Card offers a 0% APR for the first 18 months on purchases and balance transfers (after, 14.74% to 24.74% variable). Balance transfers must be completed within 4 months of account opening.
0% for the first 18 months on purchases and balance transfers (balance transfers must be completed within 4 months of account opening)
14.74% to 24.74% variable
Balance transfer fee
3%, minimum $5
Foreign transaction fee
There's no surefire way to get a low interest rate, but there are actions you can take to increase your odds of receiving the best interest rates. Consumers with good or excellent credit (scores of 670 and above) have a greater chance of receiving interest rates toward the lower range compared to those with bad or fair credit.
For example, say two consumers apply for a card with a 14.99% to 24.99% variable APR. One has excellent credit and the other has bad credit. Chances are the consumer with excellent credit will receive an interest rate near 14.99%, while the consumer with bad credit will receive a higher rate closer to 24.99%.
That's a 10% difference, and can add up to a big difference in interest charges if you wind up carrying a balance on your credit card.
For instance, assume that the bad credit consumer receives a 24.99% APR and the excellent consumer receives a 14.99% APR. Both consumers incur $5,000 in credit card debt and plan to pay it off after 12 months. Here's roughly how much interest each cardholder would accrue during the 12-month period:
- Bad credit consumer: $702
- Excellent credit consumer: $415
The bad credit consumer would pay $287 more in interest charges, due to their higher interest rate.
As a result, it's key to achieve a good or excellent credit score. In order to improve your credit, make all your bill payments on time and in full; autopay can be a great asset. Also consider limiting new credit card applications as needed and using a small amount of your credit limit (the lower the better).
Information about the Titanium Rewards Visa® Signature Card from Andrews Federal Credit Union has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.