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Barclays, State Farm push credit card interest rates higher

National average APR on new card offers creeps toward record levels

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Credit card interest rates continued to climb near record levels this week, spurred by rate increases by Barclays and State Farm Bank.

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.72%
14.71%
14.43%
Low interest 11.98%
11.98% 12.18%
Cash back  12.48%
12.48%
12.63%
Balance transfer 12.90%
12.88%
12.93%
Business 12.91%
12.91%
12.96%
Student
13.42%
13.31%
13.96%
Airline 14.30%
14.24%
14.30%
Reward  14.36%
14.35%
14.73%
Instant approval 15.99%
15.99%
15.99%
Bad credit 24.95%
24.95%
20.32%
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.)
Source: CreditCards.com
Updated: 1-19-2011

The national average annual percentage rate (APR) for new card offers climbed to 14.72 percent on Wednesday, according to the CreditCards.com Weekly Credit Card Rate Report, marking the highest APR average since Dec. 1, 2010. The national average hasn't declined since early December -- either rising or remaining flat for six consecutive weeks.

State Farm led the week's rate increase by raising the bottom end of the State Farm Student Visa by 1 percentage point to 11.24 percent. The card previously featured a range of 10.24 percent to 18.24 percent. The bank didn't respond to a request for comment. However, according to CreditCards.com data, this is the first time in 11 months that the bank made changes to the card's interest rates. The State Farm Student Visa currently ranks as the least expensive student credit card that CreditCards.com tracks, despite the card's recent rate hike.

Barclays was also active, increasing the range for the U.S. Airways Premier World MasterCard. This is the third consecutive week that Barclays has changed interest rates on the card. In the first week of January, the bank introduced a test offer of 15.99 percent to 24.99 percent. The following week, the bank returned the card to its earlier APR range of 15.24 percent to 18.24 percent. Finally, last week, the bank reintroduced the card's test offer. A spokesman for Barclays confirmed this week's changes but didn't offer a comment.

Other banks made notable card changes this week as well, but their moves didn't affect the national average.

Citi increased the top end of the Citi Platinum Select MasterCard's range from 19.99 percent to 20.99 percent, making it one of the most expensive Citi cards available for consumers with less-than-stellar credit. However, the card's rate increase didn't affect the national average because CreditCards.com only uses a card's lowest available rate in its calculations. Citi didn't respond to a request for comment on the change.

Bank of America also made news this week when it eliminated 0 percent promotional balance transfer offers on two of its sports cards: the MLB Extra Bases MasterCard and the NASCAR Race Points Visa. Among the 10 Bank of America cards that CreditCards.com tracks, only one still offers a 0 percent balance transfer offer. This is a significant change for Bank of America, which previously offered a large number of cards with promotional balance transfer offers, according to CreditCards.com database of card information. Despite the decline, a spokeswoman for the bank says that the bank's strategy for promotional balance transfer offers hasn't changed.

Encouraging economic news
Banks' most recent card moves were accompanied this week by encouraging economic news for the third week in a row. Last week, the Economic Advisory Committee of the American Bankers Association predicted thaft the United States' economy was on a clear path toward recovery and would steadily expand in 2011. "The economy is transitioning from reliance on monetary and fiscal stimulus to a sustained expansion in the private sector," said Stuart G. Hoffman, acting committee chairman and chief economist at PNC Financial Services Group, in a statement. "Businesses and consumers are feeling more confident about the economy, and job growth will accelerate as layoffs diminish and small business hiring picks up."

Other economists have previously provided more dour forecasts, arguing that the economy's growth, including job growth, will lag in 2011 as stimulus funds dry up. Hoffman nodded to this concern in the statement. "There are still too many people unemployed," said Hoffman. Even if the economy continues to improve, the encouraging news may not prompt enough businesses to begin hiring. As a result, the improving conditions may "take only a moderate bite out of the unemployment rate."

Officials with the Federal Reserve Bank of Chicago made similar predictions. In the bank's most recent newsletter, economists William A. Strauss and Norman Wang wrote that economic growth was expected to be "solid" in 2011. The economists noted, however, that the banking sector was expected to face an uphill battle in 2011 as banks contended with significant losses in capital from the recession, new regulations from the Credit CARD Act of 2009 and fewer consumers relying on revolving credit card debt. 

Meanwhile, five major banks, including Bank of America and Citi, reported in filings to the U.S. Securities and Exchange Commission on Tuesday that charge-off rates for credit card debt that issuers deem uncollectable dropped in December, after declining fitfully in the last year. This is good news for banks and consumers alike, providing a clear indication that consumers are finding it easier to pay their bills.

But not everyone is out of the red yet. Standard & Poor and Experian released data on Tuesday showing a significant decline in overall default rates in December after declining steadily throughout 2010. However, the groups noted that the pace of decline in default rates was uneven throughout the country, varying substantially by region. "Nationally, consumers continue to gradually improve their financial condition," said Standard & Poor's David M. Blitzer in a statement. But local analyses provide a slightly grayer picture, said Blitzer. "On a regional basis, the five cities we cover suggest that the Sunbelt continues to see greater than typical default rates."

See related: Credit card lending standards keep tightening, Fed report says, 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: January 19, 2011


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