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Credit cards steady despite economic question marks


January 31, 2014

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: 14.99 percent
  • Average business rewards credit card rate: 15.31 percent

The U.S. prime bank rate remained unchanged in the latter half of January, at 3.25 percent. Though some credit card rates are theoretically linked to the prime rate, credit card companies are able to change rates even when the prime rate is unchanged, and have done so throughout the five years that the prime rate has been held at the same level.

Despite developments that saw mortgage interest rates and long-term bond yields decline during January, the credit card offers tracked by this survey held steady in the second half of the month.

Though the U.S. economy seemed to be making progress throughout much of the past year, lately there have been some cautionary signs:

  1. Employment growth, which had been clicking along at a healthy rate of around 200,000 new jobs in recent months, decelerated sharply when just 74,000 new jobs were created in December.
  2. New home sales declined by 7 percent in December, their second consecutive monthly decline. Like the employment figures, these numbers are seasonally adjusted, so blaming the weather only goes so far.
  3. Reacting to global economic concerns, bond yields dipped and stocks took a pounding. By late January, the S&P 500 had lost 4 percent since New Year's Day.
  4. The initial estimate of fourth quarter real GDP growth was that the economy grew at a 3.2 percent annual rate -- not a bad growth rate, but a step back from the third quarter's 4.1 percent. Subsequent estimates may be more informative, as these initial estimates are often significantly off the mark.

Credit card rates have shown themselves to be less sensitive to economic changes than many other forms of interest rates. This is partly because of marketing considerations, and partly because credit card companies have to weigh both the direction of interest rates and the trend in credit quality -- factors which can often have contradictory influences on rates. Rates have been fairly stable over the past year, as so far no factor has emerged as strong enough to push them in one direction or the other.

Despite signs of trouble for the economic recovery, the Federal Reserve announced on Jan. 29 that it was taking another step towards unwinding its quantitative easing program. Though that program was influential in driving mortgage rates to record lows, it is primarily geared towards long-term rates so unwinding the program should not have much of a direct impact on credit card rates.

Consumer credit card rates

Since both consumer non-rewards and rewards credit cards were unchanged in the second half of January, the spread between the average rates for the two categories remained at 2.16 percent. This is a potential cost customers must weigh when considering the merits of a rewards program.

Student credit card rates

The last time any of the student credit card offers in this survey changed was back in September 2013, so the average for this category remained steady at 17.35 percent.

Business credit card rates

The average rate for both business non-rewards and rewards credit cards was unchanged in the second half of January. This leaves the spread between the average rates for the two categories at the unusually low level of 0.32 percent.

Excellent credit vs. average credit

With no changes in any of the consumer credit card offers tracked by this survey, the average difference between the best rate tiers and those for customers with average credit remained at 3.93 percent. This spread is one measure of the potential benefit of maintaining excellent credit.

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 01/31/14

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