Fixed rate credit cards have been around for years.  The only problem with them is that they didn’t really live up to their names.  Laws governing credit cards have always provided companies–even those offering fixed rate cards–with a loophole.  They could change the rate at any time, whether you liked it or not!

Fixed rate accounts did require a fifteen-day warning of the pending rate change.  Theoretically, this was supposed to provide consumers with the time necessary to seek out an alternative card for a balance transfer or to make other arrangements or decisions regarding the servicing of the debt prior to the rate change.  In practice, this seldom happened.  Instead, we saw many people who signed up for a fixed rate card paying higher interest rates than they had originally agreed to pay.

New legislation is changing the way credit cards will be allowed to do business.  Although the laws have passed, their terms don’t become effective until next year.  So, while the fixed rate card remains illusory, consumers will soon have the option for a more legitimate alternative to credit cards with a fluctuating APR.  New regulations will require, at minimum, a forty-five day warning for adjustable rate cards and will ban interest rate changes on cards described as “fixed rate” for the term of the card agreement.

Standard credit cards have interest rates that are tied to the prime rate (or, in some cases, the Treasury Bill rate).  If the prime rate goes up, the interest rate on the card follows.  As you might guess, however, credit card companies haven’t always been quite as quick to drop rates when the prime dips.  A fixed rate credit card isn’t tied to the prime rate.  Fluctuations in the larger interest situation don’t have a bearing on the functional interest rate of the card.

Why would anyone choose a fixed rate over an adjustable rate credit card?  What might make them the best credit cards for some consumers? There are a few good reasons.

First, when the rate is fixed, the consumer has a much better idea of what he or she will be paying on the debt.  There’s a level of predictability inherent in these agreements that can be quite attractive.

Second, there’s a matter of protection against the unknown with fixed rates.  We’ve recently witnessed the economic carnage that resulted from homeowners gambling on low interest rates with adjustable rate mortgages.  If you’re gambling on continued low interest rates and something happens to push the prime rate upwards, the consequences with respect to your credit card obligations can be severe.

Those who carry online small credit card balances and/or who pay those balances in full on a monthly basis don’t need to be as concerned about the fixed/adjustable rate question as those who tote a more substantial consumer debt obligation.  They can bet on low interest rates fairly safely because the impact of losing the wager will be relatively slight.

On the other hand, those who have substantial balances on a card (particularly those who may have transferred multiple card balances, placing them under a single “banner”) should be acutely aware of the differences between the two options and should understand how prime rate changes might help or hurt them if they’re using an adjustable rate card.

They should also be happy that their fixed rate credit cards will actually be a little more “fixed” than they once were.  People have been arguing that “there’s no such thing as a fixed rate card” for some time…  And they’ve been right.  It appears as if that could change.  Those with an interest in credit cards should get ready for true fixed rate credit cards in 2010.