Low-rate credit card market heats up in Canada

American Express Canada has launched a new salvo in the competitive world of low-rate credit cards — offering a no-fee card with an annual interest rate that's below many other cards.

Card enters competitive market of 'low-rate' cards and alternate payment technologies

Even though many credit cards charge annual interest rates approaching 20 per cent, dozens of 'low-rate' credit cards are available that charge considerably less. (Associated Press)

American Express Canada has launched a new salvo in the competitive world of low-rate credit cards — offering a no-fee card with an annual interest rate that's below many other cards.

The AmEx Essential card will carry an annual rate of 8.99 per cent. 

A federal survey of 189 credit cards done by the Financial Consumer Agency of Canada shows that many cards carry standard annual rates in the 19 to 20 per cent range. Sometimes, the rate can go as high as 30 per cent.

According to the agency's credit card selector tool, a number of institutions — including MBNA, Desjardins, Citizens Bank, Laurentian Bank, ATB and even a few of the big banks — offer "low-rate" cards in the 9.90 per cent to 14.99 per cent range. MBNA offers a True Line card with rates as low as 5.99 per cent, depending on a person's credit assessment. More than 25 cards carry rates below 13 per cent.

But many of the low-rate cards charge annual fees. The AmEx card does not.  

'Not a promotional rate'

So this no-annual-fee, low-rate card from American Express is raising eyebrows among some credit industry watchers. 

"It's an incredibly low rate," said Laurie Campbell, who heads up Credit Canada Debt Solutions, a non-profit credit counselling agency.

She speculates that the company may be trying to attract a more mainstream clientele.

"People consider American Express to be an elite, high-end card," she told CBC News, "and they want to become the everyday card." 

Campbell notes that some merchants don't accept American Express cards, citing high transaction fees. 

American Express Canada insists in a release that the new rate "is not a promotional rate and does not have a predetermined expiry date." But it also points out that it isn't guaranteeing that the rate won't increase in the future.

"Read the fine print," Campbell advises.

The launch of the AmEx card comes at a time when credit card operators face more competition from such new payment technologies as Apple Pay, which allows users to pay for things through their iPhones.

Carrying balances

The Essential card also allows people to carry over balances from month-to-month as long as they make minimum monthly payments. Some AmEx cards require people to pay the balance in full each month. 

"While many of our customers don't carry a balance regularly, there are those that have expressed the desire for more choice when it comes to using credit" AmEx spokesperson Erica Tiangco said in an email. "The launch of this product is an opportunity not only to attract new prospective cardmembers, but to also provide more choice."

The Canadian Bankers Association says 56 per cent of Canadians pay off their credit cards in full each month. The rest carry a balance. So for them, low interest rates are a more important consideration than annual fees.

For those who don't carry a balance from month-to-month, credit counsellors say a no-annual-fee card generally makes the most sense. The interest rate would be irrelevant as no interest would be charged. 

"You should always strive to pay [your balance] in full each month," Campbell says.