Credit card interest rates dip after Sony Card returns

Capital One relaunches Sony rewards card, sends national average APR lower

By Jeremy M. Simon

Interest rates on new credit card offers fell this week, following the reappearance of the Sony Card.

The national average annual percentage rate (APR) on new credit card offers declined slightly to 14.14 percent, according to the CreditCards.com Weekly Credit Card Rate Report, settling at the lowest level since mid-May. Rates have already been on the decline over recent weeks, but slipped further after Capital One reintroduced the Sony Card. 

The Sony Card was added back into our credit card database. When last offered earlier this year by Chase, the card charged an APR of 13.24 to 19.24 percent. The card is now issued by Capital One and charges an APR of 13.9 to 24.9 percent. When asked what factors determined the offer's new interest rate, Capital One didn't respond. But despite the card's now-higher rates, since the low end of the Sony Card's APR range is below the national average, rates overall moved south.

Cap One wasn't the only issuer tweaking its offers: Discover raised the upper end of the APR range on its Miles card from between 10.99 and 15.99 percent to between 10.99 and 16.99 percent. When reached for comment, Discover said it was unwilling to comment on its pricing strategies. That change didn't impact the national average, however, since we only consider the low end of any APR ranges when making our calculations. 

No finger pointing at the Fed
While Discover and Capital One both tweaked their rates, the Federal Reserve, as expected, left its alone. On Tuesday, the Fed left its key lending rate unchanged and stated it has no plans to adjust that rate anytime soon. In the statement accompanying its decision, the Federal Open Market Committee (FOMC) said it continues to expect that challenging economic conditions "are likely to warrant exceptionally low levels for the federal funds rate for an extended period." In other words, the Fed doesn't plan to raise rates before the economy gets stronger. And with historically low rates that are already near zero, the federal funds rate can't go any lower.  

When combined with the Credit CARD Act of 2009, the Fed's decsion means that most existing credit cardholders won't suffer sudden rate increases. That's because nearly all credit cards have variable rates tied to the prime rate, which moves in relation to changes in the fed funds rate. Since the Fed isn't planning to act, any APR changes will come directly from the banks. Under the CARD Act, however, banks are barred from sudden rate increases unless the cardholders makes a serious mistake, like paying 60 days late.

Already more expensive to charge purchases
With those constraints in place, lenders have been making changes to their new card offers. As a result, a cardholder who borrowed $5,000 on a new credit card today and consistently paid $150 per month at the current average interest rate would have to pay $6,390 to pay off the debt. That's $154 more than would have been required on Jan. 1, 2010, when the national average APR was 12.97 percent.  (Calculator: How long will it take to pay off your credit card balance?)

The Fed acknowledged that such higher borrowing costs -- when combined with other factors -- are holding back shoppers and, by extension, the broader U.S. economy. "Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit," the Fed said.

See related: Federal Reserve again leaves interest rates alone, 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?, Credit card rates: interactive graphic on APR changes 

Published: September 22, 2010

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