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 manyother cards.

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

• Walmart Canada to stop accepting Visa cards due to 'unacceptably high' fees
• Costco Canada to stop accepting American Express cards

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

According to the agency's credit card selector tool, anumber of institutionsincluding MBNA, Desjardins, Citizens Bank, Laurentian Bank, ATB and even a few of the big banksoffer "low-rate" cards in the 9.90 per centto 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 25cards 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 thisno-annual-fee, low-rate card from American Expressis raising eyebrows among some credit industrywatchers.

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

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

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

Campbellnotesthatsome merchantsdon'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 italsopoints 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 operatorsfacemorecompetition from such new payment technologies as Apple Pay, which allows users to pay for things through their iPhones.

• Canada's Big 5 banks sign up for Apple Pay

Carrying balances

The Essential card also allows people to carry over balances from month-to-month as long as they make minimum monthly payments. SomeAmEx cards requirepeople 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" AmExspokesperson 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 amore important considerationthan annual fees.

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

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