July 30, 2025
The Bank of Canada has cut interest rates in the past year, but credit cards are unaffected. Discover why this is and what you can do to reduce the impact of high interest rates.
Inflation has slowly fallen from its peak, and the Bank of Canada has been cutting interest rates as a result. You likely have noticed that these interest rate cuts never affect your credit card’s interest rates. They remain stubbornly high and costing you money each time you don’t pay your bill in full.
This disconnect can be frustrating, especially if you’re managing credit card debt and looking for relief. Understanding why credit card rates are immune to rate cuts can help you make informed financial decisions and avoid falling into deeper debt.
Credit card interest rates are among the highest in the Canadian financial world, often around 20% or higher. The interest rate on credit card is calculated based on factors unique to the credit card company, and you the cardholder.
Many credit cards come with a fixed interest rate set by the issuer, meaning every cardholder is charged the same rate regardless of their financial profile.
However, other cards offer variable rates tailored to the cardholder’s creditworthiness. If you have a high credit score and strong repayment history, you may qualify for a lower rate.
If your credit score is low or you have missed payments, you could face a significantly higher rate.
Keep in mind that most credit cards charge a higher interest rate for cash advances than for regular purchases. These rates often apply immediately without a grace period, meaning interest starts accruing from the date of the transaction.
Some credit cards even have higher interest rates for cash advances, meaning you’ll be charged your normal rate for making regular purchases, and a higher one for this service.
Credit cards are unsecured, meaning no collateral backs the debt. Collateral is a physical object that can be taken from you if you don’t pay, such as a car or house.
This lack of collateral increases risk for credit card companies, so they charge higher interest to offset potential losses from missed payments or defaults.
Additionally, credit card companies include the cost of perks like cashback, travel rewards, and fraud protection as part of the interest rate, which keeps rates high.
It is possible to get a lower interest rate credit card, but these often don’t offer rewards.
Credit card interest rates operate independently of the Bank of Canada’s benchmark rate. This means they are in no way tied to the Bank of Canada’s interest rate increases or decreases.
So, when the Bank of Canada announces an interest rate cut, it doesn’t affect your credit card.
Credit card issuers set their rates based on factors unique to their business model. These factors include the cost of funds, the risk of defaults, and operational expenses like fraud prevention and rewards programs.
This allows credit card issuers to have interest rates that reflect their internal priorities rather than external market conditions.
Profit motives also play a significant role in keeping credit card rates high. Credit card companies earn substantial amounts of money from interest charges, especially from cardholders who carry balances month to month.
Even when the Bank of Canada lowers its rates, credit card issuers often opt to retain their higher rates to protect profit margins. Credit cards typically don’t pass savings from interest rate cuts to consumers, as doing so would reduce their earnings.
So, while you won’t see any interest rate cuts on your credit card, there are ways to minimize the cost of high interest rates.
Credit card companies call people who pay off their balances in full every month “deadbeats.”
While the term sounds harsh, it reflects how credit card companies view these customers. Cardholders who don’t carry a balance avoid paying interest, which as we’ve said is a major source of profit for credit card companies.
Credit card companies design their products expecting many users to carry balances and pay interest.
When you avoid interest entirely, they see you as less profitable. So, despite the negative term, being a “deadbeat” in the credit card world means you’re managing your credit responsibly and avoiding unnecessary debt.
If you’re unable to be a “deadbeat” and pay off your full balance, you should a least be paying more than the minimum.
When you only pay the minimum, most of your payment only goes toward covering interest charges, leaving most of your true balance untouched. Over time, this will lead to paying significantly more than your original debt.
By paying more than the minimum, you reduce your overall balance faster. Credit card interest is calculated based on your remaining balance, so lowering the total amount you owe decreases the amount of interest you’ll have to pay.
Paying more than the minimum amount can also improve your credit score as well.
If you're overwhelmed by credit card debt, our Licensed Insolvency Trustees can help. They can assess your financial situation and explain every option available for you to become debt-free.
They can even negotiate with your creditors to reduce the amount you owe.
Licensed Insolvency Trustees are regulated by the federal government of Canada and work in your best interest. They take a judgment-free approach to helping you become debt-free.
The first consultation is free of charge.
July 30, 2025
The Bank of Canada has cut interest rates in the past year, but credit cards are unaffected. Discover why this is and what you can do to reduce the impact of high interest rates.
