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All quiet on the credit card front


August 31, 2013

Current averages:

  • Average consumer credit card rate, overall market: 17.10 percent
  • Average consumer non-rewards credit card rate: 15.48 percent
  • Average consumer rewards credit card rate: 17.79 percent
  • Average student credit card rate: 17.62 percent
  • Average business non-rewards credit card rate: 14.74 percent
  • Average business rewards credit card rate: 15.50 percent

The U.S. bank prime rate continued to hold steady in the second half of August, at 3.25 percent.

Interest rates generally settled down a bit in late August after making a significant upward move beginning in early May. In all, yields on 10-year Treasury notes have increased by more than a full percentage point, and 30-year mortgage rates are also up by more than one percent.

Credit cards were somewhat insulated from these increases for two reasons. For one thing, they hadn't fallen as precipitously as bond yields and mortgage rates in recent years, so credit card rates have less of a recovery to make. Secondly, credit card companies have a mixed view of changes in economic growth. While stronger growth generally prompts interest rates to rise, it gives credit card companies more confidence in the creditworthiness of their customers, and so they are more inclined to hold rates steady.

Certainly, compared to the increases in bond yields and mortgage rates, the movement of credit card rates in recent months has been muted. Overall, consumer credit card rates are up just 0.12 percent since the end of April. Rates on student credit cards are up by just 0.20 percent over the same period, and rates on business credit cards are unchanged.

Again, not only were credit card rates steady in late August, but bond yields also took a step back. At this point, the calm in interest rates can be seen as the markets looking for a new theme. The rise in interest rates this past spring was prompted by increased optimism about the economy, accompanied by speculation that the Federal Reserve would soon start to back off from its low interest rate policies. However, this was followed by some disappointing economic news and some equivocation from the Fed about when it would begin tapering its stimulus measures.

In a sense then, interest rates are like a sailboat after the wind has calmed, just waiting for the next breeze. The big question is which way that wind will be blowing.

As August neared an end, there was a heightened risk that an ill wind might be the next thing to propel interest rates. As the confrontation over the Syrian regime's apparent use of chemical weapons threatened to escalate that conflict, it raised the possibility of higher oil prices creating inflationary pressures. This in turn would prompt interest rate increases that could impact credit cards as much as bond yields, because unlike with economic growth, there is no silver lining to higher inflation that would mitigate a rise in credit card rates.

Consumer credit cards

Consumer credit card offers tracked by this survey were unchanged for the entire month of August. Until a new interest rate trend begins to affect credit card rates, those stable rates give consumers a good opportunity to shop around and find the best deal for their needs.

Student credit cards

After rising by 20 basis points in the last survey, student credit card rates leveled off in late August, giving students and their parents a chance to settle on their choice of credit cards before the fall semester begins.

Business credit cards

Business credit card offers remained unchanged, continuing a streak stretching back to the end of April.

Good credit vs. average credit

Since there were no changes in any of the credit card offers tracked by this survey, the spread between rates for customers with excellent credit and average credit card rates remained unchanged at 4.10 percent.

In total, IndexCreditCards.com surveys information from nearly 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 08/30/13 (Modified 09/30/13)

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