Q&A: Credit card interest rates

Dear Liz: I have had a certain credit card for over five years. I just received a letter stating that my interest rate was going to be raised from 10.24% to 12.24%. My FICO score is 819 and I have never had late payments on any of my cards. I called the issuer to complain about this change but they will not reduce the rate. The letter states that they obtained my FICO score of 819 from Experian and used the score to make the decision to raise my APR. They told me that they are raising rates across the board for customers with FICO scores over 800. Why are credit card companies allowed to do this? It is so unfair.

Answer: Credit card companies are no longer allowed to raise interest rates arbitrarily on individuals’ existing balances, as they could — and often did — before the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. Now card issuers are allowed to raise your interest rate on an existing balance only if you’re 60 days or more late with your payment, a promotional rate has expired or the index to which a variable-rate card is linked has gone up.

Credit card companies can, however, raise your interest rate going forward for pretty much any reason they want, and new balances will accrue at the higher rate. Also, the CARD Act’s restrictions apply only to consumer credit cards; business credit cards aren’t covered by the law.

Changeable rates are just one of the reasons why it’s not smart to carry credit card balances. Since you have high credit scores, though, it should be easy for you to find another card with a low promotional rate. Some cards now offer a 0% rate for 12, 15 or 18 months, although you’ll typically pay a balance transfer fee of around 3%. Sites such as CreditCards.com, NerdWallet and LowCards.com, among others, list these competitive offers.

Once you get the new card, you should work to pay off the entire balance before the promotional rate expires.

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Q&A: IRA interest rate terms

Dear Liz: I went to renew my IRA certificate of deposit and the bank officer suggested that I renew at the greater rate being offered for a five-year term (about 1.5% APR) rather than the lower rate for a one-year term (about 1% APR). She explained that since I am over 59 1/2, I can close the account at any time and roll it over to a new IRA should rates rise (for example to 1.75% in 15 months) with no penalty whatsoever. Is this true?

Answer: You don’t have to close and reopen IRAs when a CD matures or you want to change investments. The IRA is the bucket that holds your investment, not the investment itself. You also should be skeptical about claims that you would pay no penalty for early withdrawal. Not only are such penalties the norm, but a Bankrate survey found 9 out of 10 banks won’t just require you to forfeit the interest but will dip into your principal to pay the fees if necessary. The bank may offer a one-time opportunity to lock in a higher rate; if that’s the case, you should get the details in writing as well as the penalties if you have to withdraw the money prematurely.

In fact, any time someone pitches you an investment for your retirement funds, you should ask a lot of questions and get every detail and promise in writing. If the pitch is coming from someone who will profit from your investment — which is often the case — you should consider running it past a neutral third party such as a fee-only planner.

By the way, the Federal Reserve has signaled that it’s considering raising interest rates this year. That’s no guarantee that it will, but locking up your money now is a gamble.

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