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Credit card rates play a wait-and-see game


March 15, 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: 17.56 percent
  • Average business non-rewards credit card rate: 14.99 percent
  • Average business rewards credit card rate: 15.31 percent

The U.S. bank prime rate remained unchanged at 3.25 percent in the first half of March.

None of the credit card offers tracked by this survey has changed since the last semi-monthly survey. This stability can be chalked up to a wait-and-see attitude, as there is currently a fair amount of uncertainty as to the direction of the economy. The following are three key factors in that uncertainty, and their implications for interest rates:

  1. The lull in growth. The Bureau of Economic Analysis recently revised its estimate of real GDP growth for the fourth quarter down to a 2.4 percent annual rate. This is quite a drop-off from the third quarter's rate of 4.1 percent. Also, December and January's job growth figures were very disappointing, before the employment market improved a little bit with 175,000 new jobs created in February. The key unknown right now is how much this lull in growth has to do with the weather. Within a couple of months, economists should no longer have the harsh winter to blame, so it will become clearer what state the economy is really in.
  2. The Federal Reserve's next move. In its last two meetings, the Federal Reserve began to ease back slightly on its stimulus program directed at long-term interest rates -- meaning these rates would be allowed to rise, especially if the Fed continues to phase out that program. Will recent signs of economic weakness encourage the Fed to keep the downward pressure on rates a little longer? The Federal Open Market Committee meeting on March 18 and 19 will reveal what the Fed thinks of the economy now.
  3. Russia vs. Ukraine. There are several implications to this confrontation, but the most immediate economic consequence could be inflation if tensions continue to escalate. Open conflict could be disruptive to oil and natural gas supplies, which would be likely to boost global prices for those commodities. That could lead to the worst type of higher interest rates -- higher rates without the offsetting benefit of a stronger economy.

When most interest rates were falling sharply over the past six or seven years, credit card rates stayed relatively high. That gives credit card companies a bit of a cushion so they can wait and ponder their next move as these economic developments unfold.

Consumer credit card rates

With no change in consumer non-rewards or rewards credit cards, the spread between average rates in the two categories remained at 2.16 percent. That spread, along with consumer rates overall, has been unchanged since the end of October.

Student credit card rates

After rising in each of the last two surveys, student credit card rates held steady throughout he first half of March.

Business credit card rates

Since rates on both categories of business credit cards were unchanged, the spread between business non-rewards and rewards credit cards remained at 0.32 percent. Note that this is much lower than the corresponding spread for consumer cards, making the potential cost of business rewards programs much cheaper on a relative basis.

Excellent credit vs. average credit

The spread between consumer credit card rates for customers with excellent credit and those for consumers with average credit remained at 3.93 percent. This represents the potential additional interest cost of having a mediocre credit history -- or, to think about it the other way around, this spread represents the potential reward 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 03/15/14

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