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The Best Low Interest Credit Cards:
according to Frankford Financial® and SmartMoney®
Ira Stoller collects credit cards the way some people collect supermarket coupons. The Butler, N.J., sales representative rotates at least 20 pieces of plastic through his wallet, taking a different one out for each purchase he makes. He keeps his Amazon.com Platinum Visa near his computer at all times; he gets rewards points on all online purchases. For buying electronics, he uses his Circuit City Rewards Visa, which entitles him to special discount privileges at the electronics chain. Ditto for trips to Men's Wearhouse and Home Depot. then there are the gas reward credit cards; he has five of these. For everyday expenses he reaches for his Citibank Dividend Platinum Select MaserCard. Charging roughly $1,500 a month, every two to thee months he collects $50 in cash. "Different cards work for different things," he says. "You get something very specific for your money."
The credit card industry is on a special-interest rampage. It used to be, if you wanted a credit card, you basically had three choices: Visa®, MasterCard® or American Express®. These days, though, there are cards for nearly every niche. Then there are all sorts of reward cards, which offer everything from in-store discounts to free coffeemakers. All told, the average consumer has about six credit cards, according to research firm Celent, up from five in 1996. Bank of America, which offered five credit cards five years ago, now offers more than 20 separate credit card programs. "There's not a month that goes by that there's not a new credit card introduction," says Scott Strumello, associate consultant at Auriemma Consulting Group, a credit card consulting firm in Westbury, N. Y.
Why all the madness? Consumers are already charging at a record pace. Tempted by easy credit and low interest rates, Americans have more than doubled their annual spending on the four top credit card brands in the past decade, to nearly $1.4 trillion last year, says SourceMedia. Pretax credit card profits across the industry hit a record $33.6 billion last year, according to credit card consultancy R. K. Hammer. And people keep adding new cards. MaterCard increased its number of accounts by 15 million last year in the U. S. alone, a 6 percent increase from 2003, bringing the domestic total to more than 278 million.
But it's precisely this wealth of choices that has card issuers worried. With so many new options, card companies are more desperate than ever to get into consumers' wallets--and stay there. And while profits have surged, growth is now slowing. Pretax profit margins for card issuers rose by jut a tenth of a percentage point last year, the smallest increase in six years. Faced with increased competition and slower growth, it's no wonder credit card companies will go to any lengths to draw new consumers. For fans of the King, there is now the Elvis Presley Foundation WorldPoints Platinum Plus Visa. Beanie Baby Collectors can sign up for the Ty Platinum Plus MasterCard; they'll get a free stuffed animal with their first purchase. Big KISS fan? Don't miss First USA's KISS Platinum Visa. Cardholders get free monthly updates from the band.
The whole point of the special-interest card boom, of course, is to create loyalty. Only it hasn't exactly worked that way. In fact, as consumers like Stoller attest, it can often have the opposite effect. Last year card companies stuffed our mailboxes with more than 7 billion card offers; instead of resembling airline frequent flier programs, the credit card industry now resembles a daily bake-off. What's more, far from gaining loyalty, many card issuers are alienating consumers with promises that disappoint: cash-back cards that make you wait for your cash, reward programs that offer little reward, low interest rates that jump sky-high after one late payment.
So which card is best for you? It's not as complicated as it may seem. While there are hundreds of cards out there, they can essentially be broken down into four categories: rewards cards, which dangle the promise of free goods or sercices, travel caards, which focus rewards on airline miles and hotel stays; cash-back cards; and low-interest cards, whose biggest selling point is the promise of lower APRs. Which category is right for you depends on a number of factors--from how rigorously you watch your balance to what you'd most like to get out of your card to the level of fees, hassle and cost involved. We talked to card issuers, analysts, consumer-interest groups and average consumers, and then we ran scores of cards through out test. The result? Read on for our take on the four best cards, plus the runners-up in each of these categories.
Best Credit Cards in the Low Interest Credit Cards Category
Sure, working toward a free airline ticket or a plasma TV is great fun, but if you have debt to pay off, forget it. The average credit card debt per U.S. household with at least one card rose 17 percent in three years, to about $9,200 in 2003. You might not carry that much on your cards, but if you carry a balance at all, low-interest cards are your best bet. The good news is, you're the most coveted consumer; issuers make the most money from cardholders who carry balances, so they are throwing out tons of deals to entice you. the bad news is, you might stumble into some bogus deals and hidden rules.
Unless you are living off the grid, your mailbox has probably been overflowing with zero percent balance transfer offers in the past few years. This would seem to be the most attractive option--what's better than a free loan? But jumping from card to card more than every six months in a low-interest dance is not a good idea, since opening too many lines of credit can lower your credit score and ultimately raise your interest rate. For our money, the best bet is a solid, dependable, permanently low-interest card like the MBNA Motley Fool Low Purchase APR Platinum Plus MasterCard. It has no annual fee and a low 6.9 percent fixed annual rate. So if you carry a $5,000 balance, you'll pay $345 in interest charges in a year, compared with as much as $850 on AmEx's Blue card. another good choice: the Pulaski Bank of Little Rock Visa Classic, which has a $35 annual fee, but a superlow 6.l5 percent fixed rate. These cards aren't easy to get - you need a high credit rating - but if you qualify, you'd be hard pressed to find better deals.
One word of caution: Card issuers salivate over the big balances on low-interest cards because their fine print tends to be loaded with clauses that trigger penalty fees or higher rates. Fall behind on the Chase Platinum Card and the rate can go from 10.99 percent to as much as a jaw-dropping 29.99 percent; even on the Pulaski card, one late payment bumps that low APR to 18 percent. The latest fine-print favorite is a so-called universal default policy, a catch-all clause that allows card issuers to raise your interest rate at any time for almost any reason. That can range from the slightest drop in your credit score to being late on a bill to another credit card company, even to being late to another vendor--say, your cellular provider. Unfair? Maybe, but the card companies are allowed to do it as long as they disclose it. It is the kind of move you've come to expect from the confusing credit card world. You've figured out the card, fee structure and payment schedule to best suit your lifestyle and, suddenly, there's a whole new concern to take into account: being late on your phone bill.
* For current interest rates use the links below.
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About our professional credit cards advice
We are the official business partner for credit card issuers. We are dedicated to providing maximum value to frugal-minded consumers, students and business owners. We monitor changes in the credit markets on a daily basis and post the latest data so that you have the latest information.
We are not one of those credit card malls. We have 18 years of expertise in the areas of business consulting and financial e-Commerce, having worked with some of America's most trusted Fortune 500 financial brands including Chase®, e*Trade®, Morningstar® and Allstate®. We provide professional, in-depth content and credit publications that enable consumer credit education.
Andrea Glorioso, Senior Analyst, Frankford Financial ©2008
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