Credit card interest rates slide to 14.89 percent

By's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.89% 14.91%
Low interest 10.24%
10.37% 10.37%
Cash back 14.91%
Balance transfer 12.80%
Business 12.85%
Student 13.14%
Airline 15.52%
Reward  14.89%
Instant approval 23.33%
Bad credit 22.73%
Methodology: The national average credit card APR is comprised of 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.)
Updated: Jan. 7, 2015

Average rates on new credit card offers fell Wednesday for the second straight week, according to the Weekly Credit Card Rate Report.

The national average annual percentage rate (APR) dropped to 14.89 percent Wednesday after Pentagon Federal Credit Union lowered the minimum APR on one of its low interest credit cards.

The PenFed Promise Visa previously featured a flat APR of 9.99 percent. Applicants are now offered a range of APRs, starting at 7.99 percent and maxing out at 16.99 percent. The credit union also eliminated the card's promotional APR of 7.49 percent.

Meanwhile, the sporting goods store Cabela's made a small rate change to the Cabela's Club Visa, but the 0.01 percent increase was too small to significantly affect the national average. Cardholders are now offered a range of APRs starting at 15.16 percent and topping out at 21.16 percent.

Average rates are currently at their lowest point in nearly three years. The last time average rates fell below 14.9 percent was in February 2012.

However, the national average APR is unlikely to remain below 15 percent for long -- especially if the Federal Reserve raises the federal funds rate target above 0.25 percent.

Economists debate 2015 rate hike
Credit card holders currently enjoy lower rates overall thanks to a rock bottom federal funds rate that has remained near 0 percent since December 2008. But the Federal Reserve is expected to raise interest rates sometime this year, causing most card rates to go up.

The majority of variable APR credit cards in the United States are tied to the U.S. prime rate, which is directly influenced by the federal funds rate. When the U.S. prime rate goes up, credit card interest rates automatically go up as well.

The Federal Reserve signaled last month that it would begin raising interest rates at a gradual pace in 2015 after leaving the federal funds rate near 0 percent for more than six years. The exact timing of the increase is still an open question, with some economists warning that a near-term increase in the federal funds rate could rattle a still-fragile economy.

According to The Wall Street Journal, economists debated the federal funds rate increase -- which affects a wide range of consumer loans, including credit cards -- at the American Economic Association's annual meeting, held Jan. 3-5.

Some economists have expressed confidence that the economy has gathered enough strength to sustain a rate increase sometime in the next six months.

For example, Federal Reserve Bank of Cleveland President Loretta Mester (who is not currently a voting member of the rate-setting Federal Open Market Committee) told Fox Business Network Jan. 2 the Federal Reserve could raise interest in the first half of 2015 if incoming economic news continues to be strong. If that happens, credit card borrowers will see interest rates on their variable rate credit cards increase at the same time.

Other economists are more cautious and warn that low inflation and stagnant wages could make it tough to justify a rate increase so soon.

According to Reuters, John Williams, president of the San Francisco Federal Reserve Bank and a voting member of the Federal Open Market Committee said Jan. 5 that once the Federal Reserve does begin to raise interest rates, the increases should be "gradual" so that borrowers are still encouraged to take out loans and help stimulate the economy. So credit card holders may not see a steep rise in interest rates for some time.

Regardless of the exact timing of the rate increase, cardholders should expect to see their interest rates go up sometime before the end of the year. However, borrowers still have at least a few more months left to pay down their loans before their rates go up. After the Federal Reserve's last Federal Open Market Committee meeting in December, Fed Chairwoman Janet Yellen said that the Fed is unlikely to raise rates before April. 

See related: Federal watchdog agency eyes new protections from financial 'gotchas' in 2015

Published: January 7, 2015

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