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The Difference Between Low-Rate and Low-Fee Credit Cards

CIBC’s Select Visa and Aventura Visa Infinite cards offer excellent value while avoiding high interest rates and high annual fees. Learn more about what they can do for you.

This post is sponsored by CIBC

One of the best ways to save money on banking is to take a closer look at your credit card. Depending on how you use it, you might be paying more than you need to. Among the options that could save you money are low-rate credit cards and low-fee credit cards. But what’s the difference? And which one is the right choice for you?

 

What is a low-rate credit card?

When you carry a balance on your credit card—that is, when you don’t pay off your balance in full each month—your credit card company will charge you interest on the amount you owe them. The higher the interest rate, the more you will need to pay.

Typical credit card purchase interest rates in Canada can be between 19% and 22%. That means you’ll pay $220 per year, or about $18 per month, if you maintain a balance of $1,000 for a year. When you choose a low-rate credit card, you’ll pay less interest when you carry a balance. One of the best low-rate credit cards in Canada, the CIBC Select Visa Card, charges a 13.99% annual interest rate on purchases and cash along with a $29 annual fee.

 

What is a low-fee credit card?

Many premium credit cards come with perks like travel rewards, extended insurance coverage and other benefits. For example, the CIBC Aventura® Visa Infinite* Card rewards you with up to 2 points for every dollar spent on purchases using your card, and can also help you get up to 10 cents off each litre of gas at participating gas stations with Journie Rewards.

These premium credit cards often carry an annual fee of around $140, which can be well worth it depending on how you use your card. For example, by Ratehub’s calculation, the value of one CIBC Aventura point is up to 2 cents. If you earn at least 1,000 points per month on average, the value of your reward may exceed the card's annual fee of $139 (interest rate: 20.99% for purchases, 22.99% [or 21.99% for Quebec residents] for cash).

If you don't use your credit card that much, you can look for a lower-fee option instead. For example, you could get the CIBC Dividend® Platinum Visa* Card, which pays up to 3% cash back on eligible purchases and comes with a lower annual fee of $99 (annual interest rate: 20.99% for purchases, 22.99% [or 21.99% for Quebec residents] for cash). Or you could choose a no-fee credit card like the CIBC Dividend Visa Card, which pays up to 2% cash back on eligible purchases and does not have an annual fee (annual interest rate: 20.99% for purchases, 22.99% [or 21.99% for Quebec residents] for cash).

 

Which should I choose: low interest or low fees?

 

Your choice of a low-interest or low-fee credit card depends on your type of usage.

If you don't pay your bill in full each month, you can save money using a low-interest credit card that charges a lower rate of interest on the balance you carry. For example, if you carry a balance of $5,000 for a full year, you can save $400 by switching from a credit card that charges 22% interest to a low-rate card that charges 14%.

If you pay your bill in full each month but don't use your credit card enough to make the annual fee worthwhile, you can save money by switching to a low-fee credit card. For example, you can save $120 in annual fees per year by choosing the CIBC Dividend Visa Card over the CIBC Dividend Visa Infinite Card. You’ll want to do the math on this, however, because you will also earn fewer rewards with a low-fee or no-fee card.

If you pay your credit card bill in full each month and you use your card for most of your everyday purchases, you could potentially save money by upgrading to a card with a higher interest rate and annual fee—as long as the card also has a strong travel or cash back rewards program.

For example, if you spend $5,000 a month using your credit card, you could earn over 30,500 Aventura Points in your first year using the no-fee CIBC Aventura Visa Card—enough for a flight to anywhere in Canada or the continental United States to a maximum value of $800.^ Switching to the CIBC Aventura Visa Infinite Card will cost you an annual fee of $139 per year, but the same spending profile will earn you over 60,000 Aventura Points, enough for a flight to anywhere in the world up to a maximum value of $2,000.^

 

The bottom line

 

If you want to save money on your credit card, looking into a low-interest credit card or low-fee credit card could be the way to go.

If you carry a balance on your credit card, a low-interest card can save you hundreds of dollars per year in interest charges compared with what you might spend paying typical credit card interest rates.

If you don't use your credit card a lot, you might be able to save money by switching to a credit card with a low annual fee or no annual fee.

But if you don't carry a balance and you do use your credit card a lot, the opposite could be true. You could actually save money by switching to a card with an annual fee and a higher interest rate, but also a more lucrative rewards program.

If you review your spending habits regularly and look for new options that could save you money, you might be surprised by what you find.

 

^ For full details, see maximum ticket prices and Aventura Flight Rewards Chart at www.CIBCRewards.com. Some airlines may impose fees, restrictions or other conditions on air travel.

This post was sponsored by CIBC. The views and opinions expressed in this blog, however, are purely our own.

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