Credit card interest rates stay steady
By Kate Tomasino
The average annual percentage rate (APR) on new
credit card offers held steady at 14.65 percent on Wednesday, according to
CreditCards.com's Weekly Rate Report.
|CreditCards.com's Weekly Rate Report
||6 months ago
|Methodology: The national average credit card APR is comprised of about 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Though the national average remained static,
Discover implemented a higher APR on the top end of the range for its Miles by
Discover card this week. The APR was
bumped up from 15.99 percent to 16.99 percent.
Discover did not elaborate on the reason for the change.
"We do not comment on our rate marketing practices
for competitive reasons," Discover spokesman Matthew Towson said.
CreditCards.com adjusted the card's APR in its
database. However, since only the low
ends of the APR ranges are used to calculate the national average, there was no
Interest rates have bounced around in a tight range for
the past five months, hovering around the 14.7 percent mark. During that span, the national average APR peaked
at 14.78 in mid-November -- the highest it's been in more than three years --
and hasn't fallen below 14.63 percent. Six months ago, they were a half-percent
lower, at 14.15 percent. In March 2008, when the recession had just started and
before the Credit CARD Act of 2009 imposed restrictions on rate hikes, the
national average APR on new offers stood at 11.11 percent.
Rising APRs mean real money for consumers. For example, a typical cardholder who borrowed $5,000 on a credit card
today and consistently paid $150 per month at today's average interest
rate would have to pay $6,459 to pay off the debt. That's $452 more than
would have been required in March of 2008, when the national average
was 11.11 percent.
(Calculator: How long will it take to pay off your credit card balance?).
Issuers reluctant to act
Card issuers may be hesitant to lower APRs until the
economy shows further signs of recovery.
The Federal Reserve's rate-setting committee made clear in a statement Tuesday
that it doesn't see the economy being out of the woods, and "the unemployment rate remains
elevated." The means many Americans
will continue struggling with credit card debt.
Linda Sherry, director of national priorities for Consumer Action, suggests that those in debt discontinue using their credit cards
. Here's why: Say you have a $5,000 balance on a card with a 14.9 percent APR. If that card's rate changes to 19.9 percent, the new rate cannot be applied to that previous $5,000 balance. That's because the CARD Act says interest rate hikes can only be applied to future purchases, not earlier ones. So if you don't make any future purchases, the rate basically will never take effect.
The Fed also announced the federal funds rate will
stay put at 0 percent to 0.25 percent which means the prime rate, a factor used
in determining most Americans' credit card APRs, remains the same at 3.25
percent. The significance of this decision is that since the federal funds rate
dictates the prime rate, APRs will not increase or decrease for now -- at least
not because of the Fed. Card issuers may offer new cards at any rate they like.
Most credit cards are variable, but the CARD Act
sharply limited issuers' ability to raise rates for good-paying customers. Two
primary factors that cause APR changes include late payments of 60 days or more
and governmental changes to the federal funds rate. When the Fed eventually decides to raise the
federal funds rate, APRs will follow suit -- the law allows issuers to pass
along those increases. If issuers decide to boost cardholders' rates on new purchases, the act requires
banks to provide 45 days' notice
See related: Credit CARD Act of 2009
, Credit card reform arrives in the form of the Credit CARD Act
, Calculator: How long will it take to pay off your credit card balance?
Published: March 16, 2011