If there’s a chance you’ll carry a balance from month to month; you should look for a low interest credit card.
As you can guess, low interest credit cards come equipped with annual rates well below that of typical credit cards (for example, 8.99% versus 19.99%) which will result in less accumulated interest if you can’t pay off your balance in full. Depending on the size of your balance, that can add up to several dozens of dollars in savings every month, and hundreds every year.
Low interest credit cards are also useful “backup credit cards” to use in case of emergencies. If you have to make an urgent purchase, are cash strapped, or anticipate you’ll be taking on more debt, you won’t rack up as much in interest charges with these cards if you don’t completely pay off your purchase within the 21 day grace period. Remember though, like with any credit card, interest is still part of the equation and you’ll need to make minimum payments every month.
Below we’ve compiled a list of the best low interest credit cards in Canada for 2020.
The best low interest credit cards in Canada for 2020
|Credit card||Interest rate (APR)||Annual fee|
|1||MBNA True Line® Gold Mastercard® (VIEW)||8.99%*||$39|
|2||MBNA True® Line Mastercard® (VIEW)||12.99%*||$0|
|3||BMO Preferred Rate MasterCard (VIEW)||12.99%||$20 (waived for 1st year)|
|4||National Bank Syncro Mastercard (VIEW)||Prime rate + 4% (minimum of 8.90%)||$35|
|5||TD Emerald Visa (VIEW)||Prime rate + 4% – 12%||$25|
|6||Home Trust Secured Annual Fee Visa Card (VIEW)||14.99%||$59|
|Can’t choose? Find the right card for you here.|
*Rates vary for residents of Quebec
MBNA True Line® Gold Mastercard®
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The MBNA True Line Gold Mastercard is one of the few credit cards to offer a fixed interest rate in the single digits (8.99% on purchases; cash advances are closer to the status quo at 24.99%).
In addition to its rock-bottom APR, this card also features a 0% introductory rate on balance transfers for the first six months for eligible new applicants (an additional fee of 3% of the transferred amount or a minimum of $7.50 also applies). That’s an enticing bonus for cardholders looking to consolidate and more easily manage their outstanding debts on a single card. There is an annual fee of $39 and no minimum income required to qualify for this credit card.
Why we like it:
The MBNA True Line Gold Mastercard is the quintessential low interest credit card: It has the lowest fixed interest rate in Canada as well as the lowest promotional interest rate on balance transfers. The icing on the cake: You can take advantage of the promotional balance transfer offer up to 90 days after opening your account instead of immediately, which isn’t the case for several other credit cards.
This credit card offers around the clock fraud prevention, 24/7 customer service and a variety of insurance options if you book travel and make purchases with this credit card.
MBNA True Line® Mastercard®
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In the Venn diagram of features most sought after by those looking to minimize their credit card debt, the MBNA True Line Mastercard has some considerable overlap. The card has no annual fee, a below-average purchase interest rate of 12.99% and boasts a competitive ten month introductory rate of 0% on balance transfers (plus a 3% fee on the transferred amount of at least $7.50) for eligible cardholders who are approved.
Why we like it:
First and foremost: The 12.99% fixed interest rate on purchases is considerably lower than the standard 19.99% found on most cards, especially when considering the fact it charges no annual fee. To put things in perspective, most low interest credit cards from the big banks are usually accompanied by some annual fee.
Plus, not only does this card have the best balance transfer promotional rate in the country at 0%, it lasts ten months. That’s the longest promotional period for balance transfers on this list and is even four months longer than the offer provided by the Gold version of this card highlighted above. Lastly, while most credit cards require you to apply for a balance transfer at the time of your application, the MBNA True Line Mastercard gives you the flexibility to apply for a transfer within 90 days of opening the account. This extra time gives you considerable leeway when planning your debt repayment strategy.
The MBNA True Line Mastercard isn’t packed with perks like many other fee-based credit cards, but it does offer you fraud protection and access to 24/7 customer service.
BMO Preferred Rate Mastercard
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The BMO Preferred Rate Mastercard has a $20 annual fee and charges 12.99% on purchases, cash advances and balance transfers. You need to earn at least $15,000 per year to qualify for this credit card. As a special welcome offer, the BMO Preferred Rate Mastercard offers a 3.99% introductory interest rate on balance transfers for nine months, plus a 1% fee.
Why we like it:
The interest rate of 12.99% is among the lowest in Canada and doesn’t only apply to purchases and balance transfers, but cash advances as well. The balance transfer promotional period is also longer than those offered by most other credit cards (nine months versus the typical six months), giving you more time to pay down any outstanding debt.
When you make purchases with the BMO Preferred Rate Mastercard, you’re covered by free extended warranty which doubles the manufacturer’s warranty up to one year and purchase protection. You’ll also qualify for Zero Dollar Liability, which protects you from unauthorized purchases made with the credit card.
National Bank Syncro Mastercard
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The National Bank Syncro Mastercard operates a little differently from the other low interest credit cards mentioned higher on this list. As opposed to having a fixed interest rate, this card has a variable APR that is determined based on the following calculation: prime rate + 4% (minimum of 8.90%) for purchases, and prime rate + 8% (or a minimum of 12.90%) for balance transfers.
Based on National Bank’s current prime rate of 2.45%, the card’s interest rate is now set at 8.90% for purchases and 12.90% for balance transfers – though your credit score may play a role in what rate you get.
Why we like it:
Considering we’re in an ultra-low interest environment, this card lets you secure a rate that’s well below what typical credit cards charge. You can also get approved with a credit limit of as little as $500.
As a low interest credit card, the National Bank Syncro Mastercard doesn’t offer much in terms of perks. But, it does provide purchase protection, extended warranty, and access to the Priceless Cities program that allows cardholders to take advantage of curated dining and travel experiences.
TD Emerald Flex Rate Visa Card
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Similar to the aforementioned National Bank Syncro Card, the TD Emerald Visa has what’s known as a variable interest rate. Its interest rate isn’t fixed and will change depending on the prime rate combined with your creditworthiness according to the following calculation:
prime rate + one of the following six rate tiers:
- 11.75% or
Since the current prime rate is 2.45% according to TD, that means you could land a rock-bottom interest rate of just 6.95% (prime rate + 4.50%) if you have an excellent credit score.
On the other end of the spectrum, if you don’t have the strongest credit history, you could end up with an interest rate of 15.20% (prime rate + 12.75%), which isn’t the lowest on this list by any stretch but still well below the standard 19.99%. In another slight downside, this card doesn’t come with a promotional balance transfer offer, so you won’t save as much on interest when consolidating your previous card balances onto the TD Emerald Visa when compared to most other cards on this list.
In terms of perks and features, there’s plenty to like. This card comes with Visa Zero Liability protection, so you’ll be covered in the event someone else uses your card to make a purchase you didn’t authorize. Additionally, cardholders will get purchase and extended warranty protection. You can also snag up to 10% off the base rate on rental car bookings at eligible Avis and Budget locations when using this card.
Home Trust Secured Annual Fee Visa
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The Home Trust Secured Annual Fee Visa Card is a secured credit card, which means it’s extremely easy to get but requires a security deposit equal to the credit limit of the card. For example, if you applied for the credit card with a $2,000 credit limit, you would need to put down a deposit of $2,000. You can use it just like a regular credit card, and the purchase interest rate is 14.90% – not the lowest on this list by any means but still five percentage points lower than standard credit cards. There is an annual fee of $59 for this credit card, and it’s not available to residents of Quebec.
Why we like it:
This credit card is great for anyone with bad credit or with no credit score at all. You can apply for this credit card and use it to build up your credit before you graduate to an unsecured credit card. You can apply for this credit card if you have been discharged from bankruptcy or if you are in Consumer Proposal.
Some secured credit cards have limited uses, but you can use the HomeTrust Secured Annual Fee Visa Card just like a regular credit card, including making purchases online, over the phone, and at 24 million locations across the globe.
Credit card interest – glossary of terms
- APR stands for “Annual Percentage Rate” and it’s what banks use to calculate the amount of interest you owe on a credit card. Interest is shown in annual terms as a yardstick measurement – similar to how kilometres per hour is used to calculate a car’s speed – and the actual interest someone owes will vary depending on how long they owe a balance. For instance, if your card has a 19.99% APR but you carry a balance for just one month, your effective interest rate would be closer to 1.67% (19.99% ÷ 12 months).
Most cards will have different APRs for different types of transactions (i.e. purchases, balance transfers, and cash advances).
- Purchase Interest Rate: When you think of credit card interest, this is the rate you probably have in mind.
It’s the rate you’ll be charged on regular everyday purchases you charge to your credit card (think groceries, clothes, and everything in between). The purchase interest rate will be charged when – and only if – you carry a balance, so it’s a non-factor so long as you pay off your credit card bill in full and on time every month by the due date shown on your statement. That’s thanks to a 21-day interest free grace period between monthly billing cycles. If you don’t pay off your balance in full, however, this grace period is lost and interest will be applied to your purchases as you make them.
- Balance Transfer Interest Rate: This is the rate you’d owe on a balance you move from one credit card to another. Unlike the purchase interest rate covered above, this rate doesn’t come with the benefit of an interest free grace period and you’ll start accumulating interest on your transferred balance immediately.
The balance transfer rate on a credit card is usually the same as its purchase interest rate (i.e. 19.99% APR on rewards credit cards), but sometimes it’s higher.
- Balance Transfer Offer / Introductory Rates: We can’t talk about balance transfers without covering balance transfer offers.
Many credit cards come with special offers that dramatically reduce the balance transfer interest rate for a limited time. These offers can have APRs as low as 1.99% or 0% and last anywhere from six to ten months. These offers can help you pay off old credit card balances for much less and transition your move from one credit card to another. Once a balance transfer offer ends, the card will revert back to its regular balance transfer rate.
- Cash Advance Interest Rate: This is the rate you’d owe if you use your credit card at an ATM to withdraw paper bills. This rate has no grace period and interest will be charged daily from the moment you take out the cash until you pay back what you owe completely.
Sometimes the cash advance rate on a credit card will be the same as its purchase and balance transfer rates, but in many cases, it’s much higher. For example, the MBNA TrueLine Mastercard has an annual purchase interest rate of just 12.99% but a cash advance rate of 24.99%.
How much you can save with a low interest card
Seeing that a credit card has a low APR might not make it immediately clear just how much you could stand to save. After all, when it comes to credit card bills, you don’t deal with percentages but real dollars.
With that in mind, we’ve run through a real-world scenario using two different credit cards: The first is a typical rewards credit card and the other is the MBNA True Line Gold Mastercard, which we’ve ranked as the best low interest credit card in Canada.
Here’s the scenario:
- You owe a $3,000 balance on your credit card
- Every month, you diligently pay $200 towards your credit card balance to clear your debt
|Typical Rewards Card||MBNA TrueLine Gold|
|Months until your balance is paid||18||16|
|Total interest owed||$480||$194|
This makes it abundantly clear just how much a low interest credit card can help your bottom line. You’d save $286 in interest and pay off your balance two months faster with the MBNA True Line Gold compared to a typical rewards credit card.
Even if we were to assume the rewards credit card in this example has no annual fee, you would still save a whole lot more on interest with the MBNA True Line Gold even when accounting for the fact it has an annual fee of $39. This makes it obvious why you shouldn’t dismiss a credit card just because there’s an upfront annual fee; the cost of admission can be well worth it and help you save in the bigger picture.
How is credit card interest calculated?
As we’ve covered earlier, the term APR stands for Annual Percentage Rate and it’s effectively how banks calculate the interest you owe on a credit card if you carry a balance.
You might read the word “annual” in Annual Percentage Rate and think that interest is owed once a year, but in reality, while interest is expressed annually it’s actually calculated daily and charged monthly. Confused? Let’s explain.
- If Credit Card X has an APR of 15.99%, you’d owe interest daily at a rate of 0.0438% (15.99% ÷ 365)
- To find a credit card’s daily interest rate, simply divide its APR by the number of days in the year.
Sticking with the sample example, let’s say you owe a $3,000 balance on Credit Card X:
- Your daily interest rate would be 0.0438% (15.99% APR ÷ 365 days in the year)
- You’d owe $1.3142 in interest after one day (0.0438% x $3,000); and
- Your total balance would increase to $3,001.3142 after one day ($1.3142 in daily interest + your original $3,000 balance).
- The next day, your new balance of $3,001.3142 would also be charged 0.0438% – increasing your balance on day two to $3,002.69.
There are two key takeaways regarding how credit card interest works: First, it’s calculated daily, and second, interest compounds and you’ll be charged interest on top of interest (though, that’s not always the case and can vary by card issuer). So, while a few dollars extra in interest from one day to the next might not seem like much, over time, it can quickly balloon. Especially if you keep making new purchases on your credit card.
Remember though, if you pay off your card’s balance in full every month, you won’t owe any interest at all.
*This is a simplified example assuming no changes in day-to-day credit card activity. Many banks also charge interest based on your average daily balance over a monthly billing period.
Fixed vs variable rate credit cards
Low interest credit cards come in two varieties: fixed rate credit cards and variable rate credit cards.
The difference between them is pretty simple – a fixed rate stays the same while a variable rate can change based on two key factors: 1. A bank’s current prime rate and 2. your credit score. When it comes to low interest cards, most banks offer either fixed rate or variable rate options but not both.
Each card type has its own unique advantages.
The benefit of fixed rate credit cards is that they’re far more straightforward. Once you’re approved for the credit card, you’ll know exactly what interest rate you’ll get – down to the percent – and it won’t fluctuate regardless of shifts in the bank’s prime rate or your creditworthiness. Fixed rate credit cards are also far more likely to come paired with limited-time balance transfer promotions you can use to consolidate debts on previous credit cards and pay off at a fraction of the rate.
The advantage of a variable rate credit card is they could potentially land you a rock-bottom interest rate (even lower than what fixed rate cards offer), but as long as you have excellent credit. The downside is you might get stuck with a higher rate if your credit score isn’t great. For instance, when looking at the TD Emerald Visa, your interest rate could range from as low as 6.95% to 15.20% on the upper end of the spectrum – and that’s mostly contingent on your credit assessment. While not as big of a factor in determining your card’s interest rate, the prime rate does play a role too. Considering we’re now in an ultra-low interest environment, most banks currently have a prime rate of around 2.45%.
On the topic of rewards
If you can’t regularly pay off your credit card in full, there’s really no point in chasing points or cash back on a rewards credit card. That’s because most rewards credit cards have an Annual Percentage Rate of 19.99%, and the interest you’d rack up would devalue any rewards you earn.
Simply put: A rewards credit card is only worth it if you pay off your statement in full each and every month.
While virtually all low interest credit cards don’t offer rewards, the fact they charge a fraction of the interest of rewards cards will help you come out ahead financially when you do carry a balance.
Interest rates and minimum payments
Like with any credit card, you’re required to make at least the minimum payment on a low interest credit card on time every month. Minimum payments are usually $10 or 3% of your balance owing (whichever is higher) and must be paid every 30 days by the date shown on your credit card statement. If you don’t, you could temporarily lose the single biggest advantage offered by low interest cards – their low rates.
For instance, if you miss two minimum payments on your credit card within a one-year time frame, your annual interest rate could skyrocket by anywhere from 5 to 11 percentage points. Worse yet, you could get stuck with this higher rate for anywhere from 6 to 12 months, during which you must make minimum payments each and every month. Along with a hike in your interest rate, your credit score will get dinged and you could get hit with an additional late fee.
We can’t stress enough, you should always make your minimum payments on time. If you’re facing new financial pressures due to COVID-19 and can’t make at least your monthly minimum payments, you may want to consider not pursuing a new card and instead check with your bank if you could defer payments on your current credit card.
A deferral lets you postpone minimum payments for at least one month and may also potentially include a temporary reduction in your interest rate. Note though, interest will still accrue and rates will increase to normal after the deferral period is over. To put it simply – a payment deferral is a short-term solution to address credit card debt while using a low interest card is a long term strategy that can help you continuously save on unnecessary interest charges.
How to avoid credit card interest
The best strategy is to pay off your credit card balance in full and on time by the due date shown on your monthly statement. When you don’t pay off your balance in full, it’s the equivalent of borrowing money, and only then will you owe interest.
How to reduce credit card interest
If you’re looking to save on credit card interest but paying off your balance in full every month isn’t exactly an option, consider adopting some of these strategies:
- The first step is obvious: Avoid making purchases on credit cards that carry a conventional 19.99% annual interest rate and use a low interest credit card as your primary piece of plastic.
- Use your credit card selectively. While paying with credit may be convenient, if you regularly carry a balance, consider sticking to debit or cash for the majority of your purchases and only using credit when it’s absolutely necessary. That way, you can avoid building up a bigger balance and owing even more interest.
- Always pay more than the minimum payment. Usually, at least $10 or 3% of your balance owing – paying just the minimum every statement period may seem like the easy option but it’ll hurt your bottom line over time. Paying just a few dozen dollars extra per month on top of the minimum payment can save you hundreds in interest over the long term and help you chip away at your balance months faster.
- Automate your credit card payments – it’s one of the best ways to ensure you avoid accidentally missing a credit card payment and can help establish a low effort and consistent debt repayment strategy. Better yet, consider scheduling these payments on the day you’re paid so a portion of your paycheck goes straight towards your balance before you have a chance to spend it elsewhere while still leaving enough for important fixed costs like rent.
- Use proven strategies (debt avalanche or debt snowball): If you owe multiple debts aside from just your credit card, consider one of these two popular debt repayment strategies. The idea behind the Debt Avalanche method is to spend most of your money paying off the debt with the highest interest rate and just meeting the minimum payments on everything else. The Debt Snowball method advocates for paying off your smallest debt first (regardless of the interest rate), and with each small win, keeping you motivated to tackle your next debt.
- Take advantage of balance transfer offers. If you owe a large balance on your existing credit card, you can move your debt over to a low interest card that comes with a “balance transfer offer” and pay it off much faster. For example, the MBNA TrueLine Mastercard has a balance transfer offer of 0% for 10 months – so you can transfer your old balances onto this card and pay nothing in interest for nearly a year.
Depending on the card, you may have to pay an additional upfront transfer fee (usually 3% of your balance or less) but this small flat fee will pale in comparison to the interest you’d owe if you kept your balance on the old card. One final note: Remember that balance transfer offers don’t last forever, and after the promotional period ends, the balance transfer rate will revert back to its original interest rate.
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