Low Interest Credit Cards

The decision to choose which credit card that goes in your wallet is based on a number of factors and is often very personal. You may want a travel rewards card to help you build up points. If you’re a student, a no fee credit card may be more important to you. And if your credit history is less than perfect, you may want to get a secured credit card to help you build your credit.

Above all else, if you think there’s a chance you’ll carry a balance from month-to-month, you may want to find the credit card with the lowest interest rate. Credit card debt is difficult enough to get out of, but a high interest rate makes paying down your balance even worse. Here are some features of low interest credit cards, with examples of when choosing one might make the most sense for you.


Pros of Low Interest Credit Cards

The purpose of a low interest credit card is simple: if you can’t pay your balance in full each month, it will reduce the amount of interest you have to pay. However, there are a couple other reasons you should consider putting one in your wallet:

  • Low interest rate on purchases, cash advances and balance transfers
  • Low annual fees

Cons of Low Interest Credit Cards

For every pro, there is also a con. Here are some reasons you may not want to get a low interest credit card:

  • Fewer rewards or benefits, such as insurance coverage or travel benefits
  • Low interest rates may cause some people to rack up consumer debt
  • In most cases, balance transfers are also subject to a fee (typically 1% of the balance that is transferred)

When to Use a Low Interest Credit Card

Even though it makes most sense to use a low interest credit card when you’re carrying a balance, there are a few other practical reasons to use one. The first is, obviously, to make purchases. Whether you use it as your day-to-day card, or keep it on-hand for emergency expenses, a low interest credit card can help you pay less interest than you would on a regular credit card, if you can’t pay off the balance each month.

You could also use your low interest credit card to make cash advances. Most personal finance experts will tell you to never ever take out a cash advance – and we can’t disagree with that – but if you choose to anyway, a low interest credit card could be a good tool to do so.

Finally, one of the most common reasons people apply for low interest credit cards is to use them for balance transfers. Whether you carry a balance on one or multiple cards, you can transfer all your balances onto one low interest credit card; this means you’ll have only one monthly payment at a much lower interest rate. Alternatively, if you have a mortgage, you could consider consolidating your debt and refinancing to one lower mortgage rate.


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BMO Preferred Rate MasterCard

  • 11.9% annual interest rate for purchases, cash advances and balance transfers
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Example of How a Low Interest Credit Card Can Save You Money

Let’s look at an example of how a balance transfer to a low interest credit card can help you save money.

Sarah owes $1,000.00 on a credit card with an annual interest rate of 19.99% and $5,000.00 on another credit card with an annual interest rate of 17.99%. She wants to pay off both cards in 12 months, but feels weighed down by their high interest rates. When Sarah receives an offer for a low interest credit card with a balance transfer promotion of 1.9% for 12 months, she accepts. How much will she save in interest costs, if she pays off the $6,000.00 balance on the new card in 12 months?

If Sarah kept her two cards as-is and forced herself to pay them both off within 12 months, here’s what her interest and total charges would look like:

Credit Card 1 Credit Card 2 Total
Principal $1,000.00 $5,000.00 $6,000
Annual Interest Rate 19.99% 17.99% 18.32%
Interest Accrued in 12 Months $111.56 $500.56 $612.12
Total Paid $1,111.56 $5,500.56 $6,612.12
Monthly Payment $92.63 $458.38 $551.01

In this example, Sarah’s monthly payments would add up to $551.01 and she would be charged $612.12 of interest over 12 months. In total, she would have to pay $6,612.12 to wipe out her $6,000.00 debt.

If, instead, she transferred the balances of both cards to one low interest credit card at just 1.9%, here’s how her new charges would add up:

New Card Old Cards Difference
Principal $6,000.00 $6,000.00
Annual Interest Rate 1.9% 18.32%
Interest Accrued in 12 Months $61.93 $612.12 $550.19
Total Paid $6,061.93 $6,612.12 $550.19
Monthly Payment $505.16 $551.01 $45.85

By doing a balance transfer to a low interest credit card, Sarah can lower her monthly payment amount by $45.85 and save herself from having to pay $550.19 in additional interest costs. In total, she would only have to pay $6,061.93 to wipe out her $6,000.00 debt.

Even if her new low interest credit card came with a small annual fee (usually in the range of $0 to $30) and she had to pay a balance transfer fee (1% would be $60), the savings from doing this balance transfer would outweigh that cost and still save her hundreds of extra dollars.

We hope you’ll never find yourself in a situation where you are carrying a large balance on your credit card from month-to-month, but if you do, know that there are options. A low interest credit card is just one of the ways you can keep your monthly carrying costs low. And if you’re confident you can pay off the balance within the promotional period, doing a balance transfer to one of these cards could help you save hundreds of dollars in interest costs.