With the Federal Reserve determined to keep a lid on interest rates, money market funds yield next to nothing and 30-year mortgage rates average just 4.3%, according to the Fed.

But one financial product comes with stubbornly high rates – credit cards. The average card charges 11.8%, and some rates top 20%. Experts warn that credit card interest may remain steep. “Rates have been at these levels for years, and they are not likely to fall,” says Linda Sherry, spokesperson and director of national priorities for Consumer Action, a nonprofit education organization.

Banks say they must charge more for credit cards because they are risky. When a credit card user fails to pay the bill for a new computer, the bank is stuck with the tab. In contrast, if a homeowner misses payments on his or her mortgage, the lender can seize the property.

That's not the whole story. While credit card defaults are undoubtedly a problem, part of the reason for high rates is that companies are free to charge whatever the market will bear. Regulators only insist that banks disclose all rates and fees.

Avoiding Steep Interest Charges

The best way to avoid interest charges is to pay credit card balances every month. That way cards can serve as conveniences, not burdens. To eliminate a balance, consider withdrawing savings. “If you are getting less than 1% on savings, then it can make sense to take the money and pay off a card that charges 22%,” says Sherry.

Despite the incentives to avoid accumulating balances, millions of customers incur charges. Some simply don’t understand how expensive cards can be. Others feel that they have no choice.

If you must run a balance, take steps to limit the costs. Start by shopping carefully for the best deals. Websites like Bankrate.com and Creditcards.com enable you to search for the right offer. Using the sites, you can screen for low interest rates, cash-back features or discounts on air fares.

Finding the Best Rate

People with the highest credit scores are likely find the best deals. Those with FICO scores above 720 may qualify for rates of less than 11%. But people with middling credit – a score from 630 to 700– can expect to pay a percentage point or two more. To lower your rate, check to see if your number is accurate. Going forward, you may be able to improve your score by paying your credit card bills promptly.

To limit costs, take advantage of one of the many deals on the market. In a typical promotion, a new card comes with a low introductory rate, such as 0% for 12 months. Say you plan to spend $2,000 on appliances. Make the purchase with the new card and pay the balance before the introductory period ends. “New cards can be really good deals, if you understand the limits and pay off the balance promptly,” says Matt Schulz, senior industry analyst for Creditcards.com.

Once you have been using your card for a year or two, you may be able to get a lower rate by asking for it. Call the toll-free line and tell the phone rep that you will switch cards unless you get a lower rate. Sometimes the bank will shave the interest rate in order to keep a good customer.

The Smart Way to Use Those Teaser-Rate Checks

Credit card companies often offer clients what are sometimes billed as "convenience checks," which often come with teaser rates. You can use a check to pay someone who will not normally accept credit cards. For example, you can cover rent or car payments. The amount of the check becomes a balance on your credit card. In a typical deal, you only owe 3.99% on the balance from the check purchase. But the teaser rate is only good for a fixed period, such as 15 months. After that, the rate can jump to 13% – or whatever your usual rate is.

If you pay off your balance every month, a teaser-rate check deal can be appealing. But keep in mind that teaser rates come with fine-print clauses that can trap you. Say you have a longstanding balance of $1,000 with a rate of 12.0%. You make a check purchase for $1,000 that qualifies for the teaser rate. Now you make a monthly payment of $200 to the credit card company. That monthly money goes to pay your high-interest balance. You will not start to pay down the balance with the teaser rate until the old debt has been settled.

The Two-Card Strategy

To permit some flexibility John Kiernan, senior personal finance writer for Cardhub.com, suggests holding two credit cards. For the first account, choose a card that offers cash back. Use that card for routine purchases and pay the balance every month. For big purchases that you must finance, consider using a second card with a teaser rate. Kiernan says that some consumers make a habit of opening new teaser cards. They maintain a big balance on a card with a 0% rate. When the introductory period is about to end, the customer shops for another teaser deal in which a card company permits them to transfer an old balance on to a new card with a low rate. A customer who does this should then close down the first teaser-deal card. Applying for multiple cards can lower your credit score – unless you keep closing them so that you never have more than two or three.

This practice sometimes works, but there are hazards, warns Kiernan. One problem is that good deals are not always available. During the financial crisis, card companies stopped offering low teaser rates. “When the music stopped, people suddenly had to pay high rates,” Kiernan says.

The Bottom Line

Find the card with the lowest interest rate and pay off your monthly balance whenever possible.Take advantage of promotional interest rates very carefully, preferably by signing up for a separate card that you do not use for routine purchases. Use this strategy only when you have a significant one-time purchase that you can pay off within the fixed time period specified by the promotion.

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