A new shake-up in consumer credit card offers and rates
December 15, 2012
- Average consumer credit card rate, overall market: 16.80 percent
- Average consumer non-rewards credit card rate: 15.11 percent
- Average consumer rewards credit card rate: 17.52 percent
- Average student credit card rate: 17.54 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 remained at 3.25 percent in the first half of December.
Early December saw both some changes which credit card offers were available, and changes in rates on existing offers. While these changes left average rates for business and student credit cards unchanged, there were changes in average consumer credit card rates. The average rate for non-rewards cards fell while the average for rewards credit cards rose, with the net result being a slight increase in the overall average consumer credit card rate.
With the year drawing to a close, it is natural to start to look ahead to the rate outlook for 2013, and a Federal Reserve meeting in the second week of December brought some new insight as to the Fed's planned interest rate policy. The Fed reaffirmed that it would continue with essentially the same policies it has pursued since the Great Recession in an attempt to stimulate the economy: namely, that it would keep short-term interest rates near zero while purchasing long-term bonds in an attempt to pull long-term rates down as well. What's different is that this time the Fed gave a specific benchmark for what would make it consider backing off from this stimulative stance.
The Fed cited a benchmark of getting unemployment down to 6.5 percent before it would feel comfortable with tightening its monetary policy. The unemployment rate as of the end of November was 7.7 percent, meaning it would likely take several months of strong economic growth before the Fed's goal could be met. The only caveat is that the Fed acknowledged it would be forced to re-evaluate this approach if inflation started to perk up.
The Fed's policy should be favorable to credit card customers. By working to keep interest rates low, these policies should have some influence on credit card rates, while the effort to stimulate the economy could help credit quality in the long run. However, while the Fed's policy target confirmed its low interest rate approach as friendly to credit card consumers, the caveat about inflation underscores the reality that rising prices are a potential enemy to those consumers. Not only would higher inflation force the Fed to back off from its current policies, but it would also cause credit card companies to consider raising rates to protect their profit margins.
Consumer credit card rates
With the average rate for rewards credit cards rising while the average for non-rewards cards fell, the spread between these two types of cards widened to 2.41 percent. This runs counter to a longer-term trend which has seen this spread narrow considerably this year. Any widening of this spread should cause consumers to reassess the value they get from rewards programs, especially those consumers who regularly have to pay interest on a credit card balance.
Student credit cards
Student credit cards held steady at an average rate of 17.54 percent during the first half of December.
Business credit cards
The average rates for both business non-rewards and business rewards credit cards were unchanged in the first half of December.
Good credit vs. average credit
The net result of changes in consumer credit card rates was a slight increase, to 3.98 percent, in the spread between rates for customers with excellent credit and those with average credit. This can be looked at as increasing the reward for maintaining good credit - or conversely, as increasing the penalty for having weaker credit.
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, 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 12/15/12 (Modified 03/19/13)