As card-issuing financial institutions stare down restrictions that will soon be imposed by the CARD Act of 2009 – namely the inability to easily adjust interest rates for risk – many are considering a move from fixed- to variable-rate cards.

While it seems intuitive to make the switch in order to avoid being stuck with a less-than-desirable interest rate, there may be an advantage to maintaining a fixed-rate program.

Fixed-rate cards are decreasing in numbers by the day. Major bank issuers and even many smaller providers of credit cards are making the obvious jump to variable rates, creating an even greater demand for popular fixed-rate cards.

Credit unions and community banks have the opportunity to tap that demand by standing out from the crowd with a fixed-rate alternative. Depending on the community, this could provide the steadfast FI with a commanding edge over local – and even national – competitors.

But how do we manage the risk of such a program, you may ask? Consider that in the past, smaller issuers – namely credit unions – have not raised rates on their cards even as indexes climbed. Also, rates can be changed on fixed-rate cards with a 45-day notice (State-chartered CUs, your states’ individual timeframes, which may be longer than 45-days will apply.), so if it becomes absolutely necessary to adjust pricing, doing so is still within the realm of possibility for fixed-rate card program managers.

Whether an FI’s potential to gain market share outweighs the inflexibility of fixed-rate programs is something each individual institution must determine. Variable-rate cards may end up being in your FI’s best interest. Taking the time to fully research the market and model different outcomes based on past and expected future performance will ultimately yield a more sound decision.