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Credit card rates show little movement as economic conditions improve

 

December 15, 2013

Current averages:

  • Average consumer credit card rate, overall market: 16.99 percent
  • Average consumer non-rewards credit card rate: 15.48 percent
  • Average consumer rewards credit card rate: 17.64 percent
  • Average student credit card rate: 17.35 percent
  • Average business non-rewards credit card rate: 14.74 percent
  • Average business rewards credit card rate: 15.31 percent

The U.S. bank prime rate was also unchanged during the first half of December, remaining at 3.25 percent.

There was a change in just one of the above categories during early December, and even that was caused by a change in product availability rather than a change in the rate offered by an existing card. Still, while the credit card landscape was fairly calm, the first two weeks of December brought news of economic developments which could lead to more dramatic interest rate changes in 2014.

Here are three recent announcements that could have a meaningful impact on the direction of interest rates next year:

  1. The estimate of real GDP growth for the third quarter as revised upward to 3.6 percent, a significant improvement over the original estimate and over the second quarter growth rate.
  2. With a second consecutive month of strong employment growth, the unemployment rate dropped to 7.0 percent.
  3. Tentative agreement between Democrats and Republicans on a budget deal raised hopes that the economy could get through 2014 without interruption by fiscal wrangling in Washington.

A stronger economy is likely to bring higher interest rates. Mortgage rates have already risen by more than a full percentage point in 2013, and if consumer demand picks up, shorter-term interest rates like bank deposit rates could soon follow mortgage rates higher. How will credit card companies react if the economy continues to strengthen?

According to the Federal Reserve, average credit card rates rose by just 30 basis points in the first three quarters of 2013, and you can expect them to continue to show a milder reaction than mortgage rates if the economy keeps getting stronger. In fact, over nearly 20 years of history for which credit card rate information is available from the Federal Reserve (a period which has certainly seen its share of economic ups and downs) credit card rates have generally operated within a tighter range than mortgage rates.

This might be because to credit card companies, the pressure towards higher interest rates that comes during economic expansions is offset somewhat by their growing confidence in the creditworthiness of their customers. So, while the stage seems set for higher interest rates next year, expect the impact on credit card rates to be relatively minor -- small enough to be avoided altogether by smart shopping for the most competitive cards.

Consumer credit card rates

For consumers, both non-rewards and rewards credit cards remained unchanged in this period. Rewards credit cards last changed in late October, and non-rewards cards in late July.

Student credit card rates

Student credit card rates remained unchanged. These credit card offers have been the same since the beginning of September.

Business credit card rates

While there was no change in the business non-rewards category, the average for the business rewards credit card category dropped by 19 basis points to 15.31 percent. This may not be as definitive a change as it seems, as it was caused by a change in the credit card offers tracked by this survey after one of those offers was made no longer available. However, even the greater availability of lower-rate offers in place of higher-rate offers may be reflective of the direction credit card companies are taking with their rate policies.

Excellent credit vs. average credit

With no change in any of the consumer credit card offers tracked by this survey, the spread between the average rate offered to customers with excellent credit and the overall average rate remained at 3.93 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 12/15/13 (Modified 01/02/14)


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