Interest rates on rewards credit cards are all over the place — act accordingly

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In the range of hobbies between croquet and wingsuiting, most people recognize that travel hacking is on the more dangerous end of the spectrum. Not because you’re likely to be turned into a red blotch on the side of a mountain, but because signing up for credit cards, manufacturing spend, or buying and reselling merchandise or giftcards can expose you to substantial financial risk.

Of course, some commonsense advice helps to mitigate those risks: start slow, make sure you understand a technique from beginning to end, don’t be afraid to lose small amounts of money while you get familiar with a new area, location, or technique.

And one of the most common pieces of advice is, “never carry a balance,” since the interest charged on a single month’s balance can easily exceed an entire year’s rewards. This is good advice, until it isn’t: I’m a big fan of the Chase Slate $0 balance transfer fee and 15-month 0% APR signup offer, particularly since at the end of the promotional period you can request a product change to another valuable Chase product like the Freedom or Freedom Unlimited (note that the Slate seems to be currently unavailable for new applications). The Discover it currently has a slightly less generous 14-month 0% APR balance transfer rate, with a 3% balance transfer fee.

If it’s a cliche that more valuable rewards credit cards have higher interest rates than other credit cards, I got to wondering: just how high are the interest rates? And it turns out, they’re all over the place, so I thought it might be interesting to compile all the interest rates on my credit cards in one place. Note that these rates are based on “creditworthiness,” so they’re purely illustrative: your interest rates will certainly be different on the exact same cards. These are also variable rates, so they’ll change along with the prime rate.

My credit card purchase interest rates, from high to low

  • Chase Slate: 20.74%

  • Discover it: 19.99%

  • American Express Delta Platinum Business: 19.24%

  • Barclaycard Arrival Plus: 18.99%

  • Citi Double Cash: 18.99%

  • Chase Freedom(1): 17.24%

  • Chase Hyatt: 15.99%

  • Chase Freedom(2): 15.24%

  • Chase Ink Plus: 15.24%

  • American Express Hilton Honors Surpass: 15.24%

  • US Bank Flexperks Travel Rewards: 14.99%

  • Fidelity Rewards: 13.99%

  • Bank of America Better Balance Rewards: 13.24%

  • Chase Freedom Unlimited: 12.99%

Four observations on my credit card interest rates

I’d never laid out my interest rates like this before, but once I did, I immediately noticed four things.

First, the Chase Slate and Discover it, the two cards I had singled out above as low-cost balance transfer cards, ended up with the highest interest rates after their promotional periods elapse. This is strong evidence (although I don’t know why you would need evidence) that Chase and Discover use those low-interest introductory periods to encourage customers to incur high balances they’ll have difficulty paying off in time. That highlights the need to have a plan to pay off your entire balance before your introductory period expires.

Second, the same banks, and even the same products, offer different interest rates. For example, I have two Chase Freedom cards, one of which was a product change from a Slate card, and the other from a Sapphire Preferred. I believe each Freedom “inherited” the interest rate terms from the previous card, and my previous Sapphire Preferred account inherited a higher interest rate than my previous Slate card.

Third, there’s no obvious connection between the value of a credit card’s rewards and its interest rate. My Freedom Unlimited, which I consider one of the most valuable workhorse cards for unbonused manufactured spend, charges the lowest interest rate, while my Delta Platinum Business card, which is barely worth its annual fee, charges the third highest.

Finally, the difference between the highest interest rate and the lowest interest rate charged by my cards is enormous. In the personal finance world there’s a somewhat pedantic controversy over whether it’s better to pay off your highest-interest debt first (saving the most on interest) or your lowest balances first (in order to “generate momentum”). In my opinion, for people with low balances and relatively similar interest rates, it simply doesn’t matter much. If you want to “optimize” your repayment, pay off high-interest debt first. If you want the psychological satisfaction of zeroing out balances, pay off low balances first. Who cares? But as the interest rate spread above shows, if you’re carrying balances on multiple credit cards and you see a spread like the one illustrated above — almost 8 percentage points — then the decision becomes a lot simpler: the higher-interest balances have got to go first.

Conclusion

Every dollar you pay in interest is a cost incurred against the profit of your travel hacking strategy. The less interest you pay, the more profitable your strategy is. But (especially during a global pandemic and economic crisis!) I’m not going to shame anyone who needs or wants to carry a balance on their credit cards. Fortunately, travel hacking also gives you the tools to easily (and even profitably) move balances from one card to another. So if you do find yourself carrying a balance on one more credit cards, it’s worth going through the above exercise and making sure you’re paying as little interest as possible on those balances.