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Postcards from the edge of the cliff

 

December 31, 2012

Current averages

  • 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: 15.51 percent

The U.S. bank prime rate held steady during the second half of December, at 3.25 percent.

The fiscal cliff cast a long shadow over the U.S. economy throughout December. Against that backdrop, the last two weeks of the year were a fairly quiet period for credit card rates, with the only change in the credit card offers tracked by this survey being a slight drop in business rewards credit card rates. The quiet environment for credit card rates might be thought of as the calm before the storm.

One concern about the fiscal cliff is that the uncertainty surrounding it has inhibited businesses from making plans for early 2013, because it has been impossible to anticipate what kind of economic environment the new year will bring without knowing what the future holds for tax rates and spending. Credit card companies are in the same predicament - it is difficult to make sound decisions about interest rates without knowing whether the fiscal cliff will be avoided, and if so, what the nature of the budget deal would turn out to be. So, lack of change in all but one of the credit card offers tracked by this survey might be indicative of a wait-and-see attitude on the part of credit card companies.

There was one good piece of news for consumers in December, and that was the announcement that the Consumer Price Index declined by 0.3 percent in November. Interest rates are based in part on inflation, and declining prices could leave room for credit card rates to decline.

Consumer credit cards

After moving in opposite directions during the first half of the month, with the average rate for consumer rewards credit cards rising while the average for non-rewards cards fell, both categories of consumer credit cards then held steady in the second half of December.

While this lack of change means there are no new deals for consumers, a stable rate environment is conducive to comparison shopping, because it means that consumers aren't chasing a moving target when they check out rates.

Student credit cards

Student credit cards ended 2012 on a quiet note, with the average rate remaining at 17.54 percent since mid-November.

Business credit cards

The lone change in the credit card offers tracked by this survey was a slight drop in the average rate for business rewards credit cards. The average rate for these cards fell by 23 basis points, while business non-rewards rates held steady. Even the drop in the average business rewards rate might be a mixed signal, because it came as a result of one credit card company eliminating its highest rate tier. This may signal a lower rate policy, but it might also signal a tightening of credit standards.

With the average business rewards rate dropping while the average for non-rewards cards was unchanged, the spread between rates for these two categories narrowed. In theory, that makes rewards programs a little more attractive, since they require a smaller rate premium now. In practice, businesses that have efficient bill-paying operations can take advantage of those rewards programs without paying any rate premium, since timely paying of bills will allow them to avoid paying any credit card interest.

Good credit vs. average credit

With no change in any of the consumer credit card offers tracked by this survey, the spread between rates for customers with excellent credit and those with average credit remained unchanged, at 3.98 percent.

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 01/02/13 (Modified 03/19/13)


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