Melissa Burden writes a blog called "Money Matters" for the Flint Journal. Last week she paid off her Bank of America credit-card balance. Today she says that her card's interest rate is being hiked. She writes: "I wonder if they send the notices after a big payoff or if this was a scheduled change and I just beat the credit card company by a hair?" Melissa, here's your answer: it was just pure coincidence. Bank of America sent a large batch of interest-rate hike letters to customers around the country last week. You're one of them.
Several of my readers received these letters as well. Bank of America is blaming the interest-rate increase on "economic conditions." I'm surprised it took Bank of America as long as it did to implement a wide-spread hike. Many of its competitors have already trotted out this excuse and raised rates accordingly. (See Citibank, Capital One, American Express, etc.)
Bank of America's opt-out process, though, is friendlier than most. Here's why: if a customer opts out, the account is not closed. Instead, the account remains open as long as the card isn't used. So, if you have a large balance on the card, you can preserve your low interest rate by opting out and not using the card. After you've paid the card's balance off, though, you can use the card again. Once you use the card, the interest-rate hike takes effect. Thereafter, if the hike is substantial enough, you'll be dissuaded from carrying a balance on that card in the future.
In addition to the friendlier opt-out procedure, Bank of America is also converting fixed-rate cards into variable-rate cards. Instead of having a nice 5.9% fixed rate, which is great for the customer, Bank of America is hiking the rate and turning it into a variable-rate product. Again, Bank of America is late to the party on this one as well. Many of its competitors have already made this move.
The move to variable rates is not surprising, either. Interest rates are at rock-bottom levels. However, when the economy recovers, interest rates will start moving up in the United States. When that happens, the variable rate on your card will go along for the ride. You can see why it makes sense for the card issuers to convert all of these fixed-rate cards.
So, Melissa, there you have it. You and millions of others received the same letter last week. It was just a coincidence that you happened to pay off your balance right before the letter hit your mailbox (see Melissa's story here).
For those carrying a balance, here's how I'd handle the situation: I'd opt out (I believe that most people have until May 1, 2009, to do this). I'd then pay off the balance (be sure you do not use the card while you're paying it off). After you've paid off the balance, you can use the card again but at the new -- and higher -- interest rate. Pay in full from then on.
•Read More Bank of America Stories Here