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A quiet start to the year for credit card rates


January 15, 2013

Current averages:

  • Average consumer credit card rate, overall market: 16.80 percent.
  • Average consumer non-rewards credit card rate: 15.11 percent.
  • Average consumer rewards credit card rate: 17.52 percent.
  • Average student credit card rate: 17.54 percent.
  • Average business non-rewards credit card rate: 14.74 percent.
  • Average business rewards credit card rate: 15.51 percent.

The U.S. bank prime rate remained at 3.25 percent during the first half of January. It has now been at that level for four years, marking the second-longest stretch over which the prime rate has been unchanged. The only longer period without a change in the prime rate was from September of 1960 through November of 1965, when the prime rate was held at 4.5 percent.

Along with the prime rate, credit card rates were unchanged over the first two weeks of the year. This lack of action was despite the fiscal cliff deal, which prompted a strongly positive reaction from the stock market. Potentially, the agreement to avoid the fiscal cliff could push interest rates higher, for two reasons. One, because it extended most tax cuts without reducing spending, the deal should be stimulative to the economy in the near term, and stronger growth would be likely to move interest rates higher. Two, because the deal is projected to add $4 trillion to the U.S. budget deficit over the next decade, there have been rumblings that this might hurt the nation's credit rating. A reduced U.S. credit standing would be likely to mean higher borrowing costs, which would come in the form of higher interest rates.

While the fiscal cliff deal could move interest rates generally higher, it does have some positive implications for individual consumers. Had the fiscal cliff's combination of austerity measures and tax increases been enacted, it was expected to create a drag on the economy which would have caused sharply higher unemployment. That potentially could have damaged the credit of millions of Americans, requiring them to pay higher credit card rates regardless of whether rates went up across the board.

Again though, despite the potential ramifications of the budget deal, credit card rates were unchanged in the first half of January. One reason might be that the average rate charged on credit card balances had already risen over the past year, even while most other interest rates continued to fall. This suggests both that credit card rates are somewhat more isolated from market events than other interest rates, and that there may already be a bit of a cushion against rising rates built into credit card rates at their current levels.

Consumer credit cards

Both categories of consumer credit cards were unchanged in early January, with the average rate on non-reward cards remaining at 15.11 percent, while the average rate on rewards credit cards stayed at 17.52 percent.

While the lack of movement in rates meant that credit card debt isn't getting any cheaper for consumers overall, at least it created a stable environment in which consumers could compare credit cards and possibly lower their rates by finding a better deal.

Student credit cards

Just as many students were still on their holiday break in early January, student credit cards took a break from rate changes, as all the student credit card offers tracked by this survey remained unchanged.

Business credit cards

As was the case with the other categories, there were no changes in the credit card offers in either of the business categories tracked by this survey. Business non-rewards credit cards have now gone more than a full year without a change in the average rate.

Good credit vs. average credit

With no change in any of the credit card offers tracked by this survey, the spread in rates for customers with excellent credit and those with average credit stayed at 3.98 percent.

In total, IndexCreditCards.com surveys information from some 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 01/15/13 (Modified 03/19/13)

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