Credit card interest rates unchanged ahead of Fed meeting

Credit card interest rates didn't move this week, in advance of a Federal Reserve announcement that is unlikely to include any change to the central bank's benchmark lending rate. Still, experts say recently introduced laws and an eventual economic recovery likely mean higher credit card APRs in the not-too-distant future.'s weekly rate chart
  Avg. APR Last week 6 months ago
National Average 11.95% 11.95% 11.94%
Balance Transfer  9.98% 9.98% 10.09%
Low Interest 10.41% 10.39% 11.36%
Cash Back 11.20% 11.20% 12.83%
Business 11.24% 11.24% 14.19%
Rewards 12.03% 12.03% 11.96%
Instant Approval 12.49% 12.49% 11.86%
Airline 13.22% 13.22% 12.61%
Bad credit 14.44% 14.44% 12.15%
Student 14.45% 14.45% 13.89%
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 below. (Introductory, or teaser, rates are not included in the calculation.)
Updated: 6-18-09

For now, rates are holding steady. The national average annual percentage rate on new credit card offers was unchanged this week, according to the Weekly Credit Card Rate Report. Among averages in nine card categories, one rose -- low interest card APRs -- and the other eight were unchanged. 

The Fed's monetary policy shouldn't alter APRs. At the conclusion of a two-day meeting on Wednesday, the Fed is expected to leave its federal funds rate, now effectively set at zero, unchanged. That means variable-rate cards that are pegged to the prime rate -- which itself is tied to the federal funds rate -- will likely not see their rates change solely based on monetary policy.

The Fed uses rate hikes to limit inflation, but consumer price data for May showed poor demand is already achieving that goal. In its report, the Labor Department said that the consumer price index (CPI) rose just 0.1 percent in May from April. On a year-over-year basis, the CPI plunged 1.3 percent, due to energy prices that are notably cheaper than they were last summer. That marked the steepest annual decline since 1950.

But that doesn't mean cardholders are entirely in the clear.

Since last year, the percentage of variable rate credit cards has increased substantially. "The industry has gone almost completely to variable pricing," says Stephen Clifford, vice president of financial services with Mintel Comperemedia in Chicago. According to Clifford, about 60 percent of new card offers in the first five months of 2008 were for variable rate cards -- the remaining 40 percent of offers being for fixed rate cards that were not tied to prime. By January of this year, 90 percent of cards had variable rates. 

That shift was driven both by Fed policy and legislation (recently signed into law by President Obama) aimed at restricting repricing of APRs for existing cardholders. "As the prime rate was falling, the issuers were shifting more offers to variable pricing strategy, and the margins that they were tying to the prime rate were increasing," Clifford says.

"When the economy starts to recover -- and assuming the Fed will start to bump interest rates when that happens -- the rates on everyone's credit cards will increase along with it," he says.

Looking at the current national average, other experts say that APRs will undoubtedly rise, because card issuers are looking to lock in rate increases before Fed regulations and the new law restrict their ability to do so. "I'm expecting it will go a lot higher, just because the regulatory stuff will prevent repricing," says Dennis Moroney, research director for bank cards at advisory services firm TowerGroup. Moroney says banks will likely boost APRs to levels last seen in the 1980s and introduce annual fees to their cards. Those rates and fees will mean cardholders either "pay for the privilege of revolving or for having a card you don't use." 

However, the law still allows banks to lower APRs on cardholders who prove themselves to be responsible over time. In such cases, the bank may tell the cardholder, "You did great for the first year. We're now reducing the rate to 'X,'" says Moroney.

See related: Obama signs credit card reforms into law

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Updated: 08-19-2018