Research and Statistics

APRs rise, even after Fed leaves rates unchanged


The Federal Reserve chose to leave lending rates unchanged earlier this week, but credit card issuers didn’t follow suit.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

The Federal Reserve chose to leave lending rates unchanged earlier this week, but credit card issuers didn’t follow suit.

Instead, banks raised rates on some cards, lifting the national average annual percentage rate on new credit card offers to 12.32 percent this week, according to the Weekly Credit Card Rate Report.

Analysts view the APR movement as part of an ongoing trend. “Overall, [APRs] have been going up over the last few months because loss rates are going up and because credit card companies are getting concerned about the new laws that are going to be applied,” says David Wyss, chief economist with Standard & Poor’s in New York. Wyss points to rising charge-off levels driven by increasing unemployment as well as the higher cost of operations for banks under the new regulations. Charge offs are the amount of credit card debt that banks have given up on collecting,

Since the new Credit CARD Act will limit their ability to reprice credit cards for existing clients, banks are taking action now. “If they can’t charge more to the worst clients, they’ve got to charge more to the average clients,” Wyss says.

Meanwhile, on Wednesday, the Fed announced it would leave its key lending rate at record lows. At the conclusion of a two-day meeting, the Fed voted unanimously to leave its federal funds rate at a range of 0 percent to 0.25 percent, keeping the prime rate at 3.25. Variable rate credit cards — which account for the majority of plastic — have annual percentage rates that are set using the prime rate.

In its statement, the central bank also reiterated that economic conditions likely mean it will keep rates “exceptionally low” for “an extended period.” According to analysts, the Fed’s primary concern is removing stimulus too soon and allowing the economic recovery to stall. In the latest signal of that growing recovery, the number of newly unemployed workers seeking benefits declined this week for the third-straight pullback in initial jobless claims.

But despite the Fed’s approach, analysts say that the bulk of cardholders will continue to experience higher interest rates.

“You’ve got to be at the high end of prime and have the characteristics that the banks see as favorable” to avoid a rate hike, says Tony Plath, professor of finance at the University of North Carolina at Charlotte. That leaves most cardholders out of luck when it comes to avoiding any rising rates.

Meanwhile, the latest changes to card offers included the introduction of APR ranges on select products. So although business cards appear to suddenly offer lower rates, in fact, many qualified applicants are unlikely to be granted these lower rates, unless they are among the prime segment of consumers with the top credit scores.

The Fed appeared to acknowledge the cost — and difficulty — to consumers of obtaining credit.

“Household spending seems to be stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” the Fed said in its statement.

See related:  Fed keeps rates steady again, waits for stronger economic recovery, A comprehensive guide to the Credit CARD Act of 2009’s weekly rate chart
Avg. APR Last week 6 months ago
National average12.32%12.28%12.00%
Balance transfer10.32%10.32%11.18%
Low interest11.52%11.52%11.83%
Cash back11.69%11.69%13.31%
Instant approval13.32%13,32%11.29%
Bad credit14.29%14.29%11.79%
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.)
Updated: 9-24-2009

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Research and Statistics

Consumers expecting holiday season to be a bit jollier

Though consumers are less anxious about the recession hampering holiday festivities, analysts expect most will attempt to keep spending in check.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more