Credit card APRs fall slightly, reversing recent rate-hike trend
Credit card interest rates dropped slightly this week, after several banks made a commitment to abstain temporarily from additional rate hikes.
|CreditCards.com's weekly rate chart|
|Avg. APR||Last week||6 months ago|
|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.)|
According to the CreditCards.com Weekly Credit Card Rate Report, the national average annual percentage rate on new credit card offers slid to 12.60 percent. The decline, which snapped a three-week run of rate increases, stemmed from the addition of cards to the CreditCards.com Rate Report database and not from APR decreases by major credit card issuers.
Major banks left APRs unchanged this week following recent pledges from Bank of America, Discover and Capital One to not raise interest rates ahead of the Credit CARD Act, which will make it tougher for lenders to hike interest rates on their customers. The act's major provisions take effect until February 2009.
Other major issuers have declined to make similar promises, and even the ones that have are still making other changes to their terms and conditions. For example, BofA said this week it plans to begin charging annual fees on some of its cards beginning next year.
Banks had been raising rates amid an economic and regulatory environment that has become increasingly challenging. "At the end of the day, they've got to match their risk with their portfolio," says Michael Rubin, author of "Beyond Paycheck to Paycheck." "If the interest rates are no longer politically palatable, another option -- as appropriate -- is to introduce annual fees," Rubin says.
In minutes released this week from the central bank's most recent policy meeting, the Fed said its members "anticipated that inflation would remain subdued for some time," thus limiting the need to keep inflation in check by raising the federal funds rate. That outlook was reiterated in a speech by Fed Vice Chairman Donald Kohn, who noted that the risk of further economic declines currently outweigh the risk of inflation.
Rubin says that banks may also leave the APRs on their card products unchanged in the short term. "I think they got done what they've got to get done, so they're priced the way they need to for the moment," Rubin says.
- Poll: Lending out your credit card often leads to disaster – Nearly half of Americans who have owned credit cards lent them out to other people. For a third of them, it didn't end well ...
- Poll: 16 million Americans fear stolen cellphone more than identity theft – Experts say personal data theft is a greater danger, but losing your cellphone also has risks ...
- Late payments on cards worsen as balances rise, NY Fed says – Growing card balances are weighing heavier on consumers' budgets, New York Fed report shows, but problems remain low historically ...