Credit card interest rates keep climbing higher

Interest rates on new credit card offers climbed higher this week, according to the CreditCards.com Weekly Credit Card Rate Report, as banks continue to charge cardholders more to carry a balance.

Against a backdrop of delinquencies and double-digit unemployment, banks raised interest rates on new credit card offers to 12.99 percent, according to the CreditCards.com Weekly Credit Card Rate Report. That’s the third increase in the past four weeks, and it represents an increase of more than a point since June.

Your wallet will feel the pinch: Someone who borrowed $5,000 on a credit card today and consistently paid $150 per month at today’s rate would have to pay $6,236 to pay off the debt. That’s $129 more than would have been required in June.

Rewards cards among hardest-hit

The increases aren’t spread evenly among the nine types of cards tracked by CreditCards.com. Over recent months, it’s become particularly costly to revolve a balance on reward and cash back cards. Since late September, reward credit cards have seen their annual percentage rates increase by well over a point, while cash back cards’ APRs have increased by close to a point. Personal finance experts have always recommended that consumers avoid using plastic to earn rewards if they can’t pay their balance in full, since the benefit of earning any reward points gets wiped out by interest rate costs. That’s especially true now.

Experts say those rising rewards card APRs stem from banks’ high expenses for managing reward programs. “I think quite simply it’s a reaction to cost. Rewards programs can be costly to run,” says Rick Ferguson, editorial director with loyalty-marketing firm Colloquy.

Issuers face tough sledding

Rewards programs aren’t the only threat to card issuers’ profits. Banks say that amid high unemployment and increasing regulation, they are raising APRs in an effort to protect themselves from losses. (Discover is the latest to report rising delinquencies: The card company said its 30-day delinquency rate was 5.31 percent, up .75 percent from the prior year.)

Card issuers have also been tweaking other aspects of their card offers: Cardholders may now find themselves paying higher fees for late payments, balance transfers and cash advances, as well as inactivity fees.

While the banks have been active, the Federal Reserve has remained on the sidelines. Amid double-digit joblessness, the Fed on Wednesday again left lending rates at record lows. Economists say the Fed will leave rates unchanged until unemployment falls. That means that while the bulk of cards have variable interest rates tied to the prime rate, any near-term changes to APRs will come from card issuers rather than the Fed.

See related:  A comprehensive guide to the Credit CARD Act of 2009, Creative new fees escape CARD Act rules, surprise consumers, Federal Reserve again leaves interest rates unchanged

CreditCards.com’s weekly rate chart
	Avg. APR	Last week	6 months ago
National average	12.99%	12.75%	11.95%
Business	10.74%	9.74%	11.24%
Low interest	11.97%	11.65%	10.41%
Balance transfer	12.09%	12.13%	9.98%
Cash back	12.49%	12.08%	11.20%
Instant approval	13.32%	13.32%	12.49%
Reward	13.42%	13.29%	12.03%
Airline	13.60%	13.60%	13.22%
Bad credit	13.74%	13.74%	14.44%
Student	14.51%	14.89%	14.45%
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.)
Source: CreditCards.com
Updated: 12-17-2009