August 31, 2012

Current averages:

• Average consumer credit card rate, overall market: 16.89 percent
• Average consumer non-rewards credit card rate:15.15 percent
• Average consumer rewards credit card rate: 17.64 percent
• Average student credit card rate: 17.34 percent
• Average business non-rewards credit card rate: 14.74 percent
• Average business rewards credit card rate: 15.74 percent

The U.S. bank prime rate was unchanged in the second half of August, remaining at 3.25 percent.

With just one exception, there were no changes over the past two weeks in the credit card offers tracked by this survey. That’s an environment which befits the late-summer doldrums. Still, as August drew to a close, a storm was raging in the Gulf of Mexico that could stir up credit card rates in the weeks to come.

Tropical Storm Isaac put a damper on the Republican National Convention, and battered New Orleans and much of the surrounding area. It also caused a shut-down of oil drilling in the Gulf, and threatened coastal refineries. While the immediate concern is human safety, the after-effects of this storm could include yet another setback for the economy.

Already, oil prices were on the rise, showing steady increases since the late June. Any damage to drilling or refining capacity could give oil prices another push higher. Given the way oil futures attract speculators, any upward surge in prices could easily turn into a sustained spiral to still higher prices.

Meanwhile, the country faces another inflationary threat in the form of higher food prices because of this summer’s widespread drought. These inflationary factors actually converge at the gas pump, where both higher oil prices and higher ethanol prices (due to a weak corn crop) may combine to send gas prices higher. Gasoline prices tend to have a significant impact on overall inflation.

If inflation rises, expect credit card companies to respond in kind. Rising prices reduce credit card profit margins, so increasing credit card rates would be a natural response. The recent calm may turn out to be short-lived.

Consumer credit cards

Both consumer rewards and non-rewards rates remained unchanged in the second half of August. As a result, the difference between the two remained at 2.49 percent. This stable environment gives consumers a good opportunity to assess whether rewards programs are worth that extra amount of interest. Of course, the best way to take advantage of rewards credit cards is to pay off the balance every month. That way the rewards can be earned without any additional price.

Student credit cards

The average rate for student credit cards rose to 17.34 percent, an increase of seven basis points. This was the only category to experience an increase in the latest survey, and this resulted from an increase in just one of the credit card offers included in this category. However, this isn’t a completely isolated occurrence. The increase in student credt card rates continues a trend which has seen those rates rise in four out of the last five surveys.

Business credit cards

There were no changes in the business rewards and non-rewards credit card offers tracked by this survey. Business non-rewards credit cards still have not changed at all so far this year.

Good credit vs. average credit

This survey measures rates at different credit-quality tiers, so it can track the difference in rates for customers with good credit ratings and those for customers with just average credit. That differential remained unchanged in the latest survey, at 3.83 percent. If inflation becomes the driving force behind a credit card rate increase, there may be relatively little effect on the spread between rates at different credit-quality tiers. That spread is more likely to be affected if a strengthening or weakening of the economy changes the intensity of credit-quality concerns.

In total, IndexCreditCards.com surveys information from some 50 different credit cards, and includes multiple credit-rating tiers from many of those cards. Examples of offers surveyed include American Express credit cards, Capital One, Chase, Citi, Discover, and other MasterCard and Visa branded cards. The information compiled not only demonstrates trends in credit card rates over time, but also indicates the different values credit card companies put on different target markets (consumer, business, etc.), as evidenced by the differences between rates for those markets.

Published 08/31/12