Research and Statistics

Rate survey: Card APRs steady in wake of U.S. credit downgrade’s Weekly Rate Report
 Avg. APRLast week 6 months ago
National average14.88%14.88%14.73%
Low interest10.73%10.73%12.03%
Balance transfer12.73%12.73%12.93%
Cash back 14.16%14.16%12.48%
Airline 14.31%14.31%14.30%
Instant approval15.99%15.99%15.99%
Bad credit24.96%24.96%24.95%
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: August 10, 2011

Despite the downgrade of the nation’s credit rating, interest rates on new credit card offers stayed the same this week, according to the Weekly Credit Card Rate Report.

None of the cards we track featured rate changes this week, so the average annual percentage rate (APR) on new credit card offers remained at 14.88 percent for the third straight week. This may indicate that a two-month period of volatility that saw the national average reach a record high of 14.91 percent may be ending, and the credit card marketplace may be returning to the stability that marked much of the first half of 2011, even as the federal government’s credit got shakier.

For example, this week marks the fourth time in 2011 that the national APR average has remained unchanged for two weeks or more in a row. That includes a five-week stretch in March and April. By contrast, from mid-2007 — when started tracking APRs — through 2010, the national average stayed flat in consecutive weeks only five times. That volatility was due, in large part, to card issuers’ concerns surrounding the impact of the Credit CARD Act of 2009. The law’s impacts are now well known and those worries have mostly subsided, contributing to the recent stability of APRs.

Creditors seemed unshaken this week as APRs for new credit card offers remained stable in the wake of Standard & Poor’s announcement on Friday that it would downgrade the U.S. credit rating from AAA to AA+.  Banks aren’t giving any indication the current interest rate climate will change any time soon as a result of the downgrade.

“The downgrade has no impact on customers at this time,” Chase spokeswoman Gail Hurdis said.

However, some experts are projecting higher interest rates in the future. According to Cristian deRitis, director at Moody’s Analytics, business owners and consumers doubt Congress will address the nation’s fiscal problems moving forward. (Moody’s Analytics is a sister company of Moody’s Investors Service, which, like S&P, is one of the three major credit ratings agencies. Moody’s, however, chose against downgrading the nation’s credit.) “The spending cuts agreed upon with the debt ceiling deal will also have a direct, negative impact on GDP growth in the short term,” deRitis said. “APRs could rise as a result of these factors as credit card issuers’ lending costs increase and as the risk of further economic weakness increases borrowers’ credit risk.” Beyond the act of increasing the debt ceiling itself, APRs are more likely to be impacted by the uncertainty brought about by the length of the debt debate, deRitis said. 

Standard & Poor’s echoed that sentiment in its reasoning for downgrading the U.S.’s credit rating. The move was controversial, given that the agency admitted a math error led them to overstate the federal debt by about $2 trillion during their decision-making process. Still, S&P officials said the move was about more than just numbers.

“In reflecting on the whole debate this year, the process [of coming to the debt ceiling agreement] itself was likely to continue to create uncertainty about the resolve of the U.S. government to take decisive action on fiscal issues,” Standard & Poor’s global head of sovereign ratings David Beers said in a segment of S&P’s CreditMatters TV. “That was highlighted by this difficulty of reaching a consensus.” He added that S&P thought the debt consolidation program lacked the sufficient size and scope needed to stabilize debt.

A more traditional source of credit card rate increases, the Federal Reserve, benched itself for two years on Tuesday. The Fed’s rate-setting committee said Tuesday it has no intention of changing the federal funds rate until mid-2013 — meaning it will stay put at 0 percent to 0.25 percent, leaving the prime rate at 3.25 percent. Since the prime rate will be stable, most variable rate cardholders won’t face sudden APR increases, barring a major credit gaffe by the cardholder, such as being 60 days late with a card payment. However, those credit cards tied to the London Interbank Offered Rate or Libor, the British equivalent of the U.S. federal funds rate, may see movement in new credit card APR offers.  

See related:An interactive guide to the Credit CARD Act

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