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AmEx boosts national average credit card interest rate

APR jumps for third week in four

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American Express this week raised annual percentage rates on several of its card offers, pushing the national average APR higher for the third time in four weeks.

CreditCards.com's weekly rate chart
  Avg. APR Last week 6 months ago
National average 12.62% 12.32% 12.35%
Business  9.69% 9.89% 16.74%
Low interest 12.10% 11.52% 12.29%
Cash back 12.36% 11.69% 13.90%
Reward 12.61% 12.37% 12.34%
Balance transfer 13.10% 10.32% 11.52%
Instant approval 13.32% 13.32% 11.49%
Airline 13.97% 13.79% 14.44%
Bad credit 14.29% 14.29% 11.79%
Student 14.45% 14.45% 14.90%
Methodology: The national average credit card APR is comprised of 95 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.)
Source: CreditCards.com
Updated: 10-01-2009

AmEx's decision to boost rates lifted the national average APR on new credit card offers to 12.62 percent this week, according to the CreditCards.com Weekly Credit Card Rate Report.The issuer also eliminated balance transfer offers and reduced introductory offer periods on some cards. 

While AmEx didn't provide comment on the card changes, its tougher lending terms come amid a regulatory and economic environment that has become more hostile to card issuers. Fitch Ratings reported that credit card charge-off rates advanced again in September, setting a fifth record high in the past six months. Charge-offs occur when banks give up hope of recovering money lent.

Federal Reserve officials this week acknowledged the stricter bank lending terms. On Wednesday, Atlanta Fed President Dennis Lockhart highlighted the restricted access to credit, saying in a speech that the "flow of credit through the U.S. banking system is not yet approaching anyone's notion of normal." He added that a "return to robust bank lending is unlikely, at least in the near term."

The Fed can move interest rates on most credit cards by raising or lowering a key interest rate called the federal funds rate. Variable rate credit cards -- which account for the majority of plastic -- have annual percentage rates that are set using the prime rate, which moves up and down in lock step with the federal funds rate. A fed fimds rate hike likely isn't coming anytime soon, either, but when the central bank does raise rates, the upward movement could be sharp.

"Once the Fed has to raise rates, they'll raise them aggressively, but that time isn't imminent. It's not even remotely imminent," says Greg Valliere, chief policy strategist at Soleil Securities  in New York City.

Last week, the Fed voted unanimously to leave its federal funds rate at a range of 0 percent to 0.25 percent, a move that keeps the prime rate at 3.25. In his speech, Lockhart said that it could be "some time" before the Fed exits its current policy initiatives, also lending his support to "the maintenance of interest rates at low levels 'for an extended period.'"

Other central bank officials struck a slightly different tone. Fed Vice Chairman Donald Kohn stated that he "can't predict how rapidly" the Fed will need to boost rates. At a Friday speech in Chicago,  Fed Gov. Kevin Warsh indicated that the next change to monetary policy may be "accomplished with greater swiftness than is modern central bank custom." 

Valliere cautions against reading too much into Warsh's comments. "The bottom line is, [the Fed has] a long way to go before they raise rates," Valliere says. 

See related: Fed keeps rates steady again, waits for stronger economic recovery, A comprehensive guide to the Credit CARD Act of 2009

Published: October 1, 2009


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