Rates on business rewards credit cards rise
March 31, 2014
- 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: 15.41 percent
The U.S. bank prime rate remained unchanged at 3.25 percent in the second half of March.
Since the last semi-monthly credit card rate survey, business rewards credit card rates rose by 10 basis points, to 15.41 percent. There are a couple of reasons to believe that this rise in business rewards credit cards might be just the first step in a trend towards rising rates:
- Improving weather could boost the economy. An extraordinarily harsh winter has been blamed for suppressing consumer activity. Now that springtime is here, there could be some pent-up demand ready to be released that would help the economy bounce back.
- The Federal Reserve continues to taper back its quantitative easing program. This is significant to interest rates in two ways. First, by beginning to unwind this stimulative program, the Fed is expressing confidence in the strength of the economy. If the Fed is right about the health of the economy, increased spending could start to push interest rates higher. The second significant thing about the Fed tapering back the quantitative easing program is that the purpose of that program was to artificially hold long-term interest rates down. As the Fed reduces its monthly regimen of bond purchases, interest rates would be allowed to rise to more normal levels. This would most directly affect long-term interest rates such as mortgage rates, but there could be some carry-over effect on credit card rates as well.
The balance between interest rates and the economy is especially delicate because interest rates have been so low in recent years. Rates can be expected to rise in a strengthening economy, but if they rise too quickly it could choke off economic growth.
Monthly employment reports remain the key indicator to watch for signs that the economy is starting to regain some of the momentum it lost in recent months. Higher credit card rates may be one price that has to be paid for a more robust economy, but in a competitive market, credit card customers can minimize the impact of rising rates by shopping around for the most competitive deals.
Consumer credit card rates
None of the consumer credit card offers tracked by this survey changed during the second half of March. Consumer credit card rates last changed back in October.
Student credit card rates
Student credit card rates were unchanged in the latest survey.
Business credit card rates
The rise in business rewards credit card rates was the first change in that category since last year. That increase widened the spread between those rates and rates on business non-rewards cards by 10 basis points, to 42 basis points. That spread is considerably smaller than the 2.16 percent spread between rewards and non-rewards cards for consumers.
The rate differential between rewards and non-rewards cards is a potential cost of participating in rewards programs. Businesses can avoid that cost by paying their credit card balances in full every month, but businesses that do carry a balance should evaluate whether the benefits gained from a rewards program outweigh the extra interest being charged for a rewards card.
Excellent credit vs. average credit
Since consumer credit card rates were unchanged during the latter half of March, there was no change in the difference between average interest rates and those for customers with excellent credit ratings. Consumers can save an average of 3.93 percent by 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.