Credit card rates continue to rise
June 30, 2015
- Average consumer credit card rate, overall market: 17.53 percent
- Average consumer non-rewards credit card rate: 16.75 percent
- Average consumer rewards credit card rate: 17.87 percent
- Average student credit card rate: 17.04 percent
- Average business non-rewards credit card rate: 14.89 percent
- Average business rewards credit card rate: 15.50 percent
The U.S. bank prime rate continued to be held steady in June, at 3.25 percent.
For all the attention focused on the Federal Reserve's June meeting, the Fed's answer on higher interest rates was a less-than-newsworthy "not yet." Still, the bond market and finance sector showed no intention of waiting for the Fed before raising rates, with bond yields and mortgage rates rising in recent weeks. Unfortunately for consumers, credit cards have also been part of the rising rate trend.
As of late June, 10-year Treasury yields had risen by 38 basis points during the month, and 30-year mortgage rates had risen by 15 basis points. Meanwhile, the average consumer credit card rate had risen by 29 basis points in June. While month-to-month changes in credit card rates can be erratic, June's increase marked the fourth consecutive monthly rise in consumer credit card rates, making this seem more like a trend than an aberration.
In outlining the reasons behind its monetary policy, the Fed has focused on two main indicators: employment and inflation. Both have turned upward in recent months, pointing the way towards higher rates. While the Fed is wary of snuffing out the economic recovery by raising rates too soon, investors and businesses whose profits and losses are determined by interest rate trends must anticipate rather than simply react to those trends.
A changing rate environment means that credit card customers have to be especially watchful -- not just when shopping for a new credit card, but also in monitoring rate changes on their existing cards. Rate changes can mean an opportunity to benefit more from smart shopping - or to be hurt more by not looking for the most competitive rates.
Consumer credit cards
The rise in the overall average interest rate for consumer credit cards was caused by a 0.98 percent rise in the average rate for non-rewards cards. This unusually steep jump in rates was due to the removal of a particularly low-rate card from the market. The lowest-rate card now offered by the same company has considerably higher rates.
Changes in the availability of certain credit card offers is as much a reflection of the interest rate strategy being taken by credit card companies as an increase or decrease in the rates on existing cards. The bottom line is that when credit card companies start pulling low-rate products from the market, it is a sign that they anticipate a rise in interest rates.
A by-product of the change in credit card offers was a narrowing of the spread between the average rates for reward and non-reward credit card rates, from 2.10 percent to 1.12 percent. For customers who carry credit card balances, this spread represents the price of participating in rewards programs, and a narrowing of that spread means that this price on average just got sharply reduced.
Student credit cards
Student credit cards continued their run of stability, remaining at the same 17.04 percent level they have held since the end of 2014.
Business credit cards
In the business credit card category, both rewards and non-rewards rates remained unchanged.
Excellent credit vs. average credit
One impact of the change in consumer credit card offers available was that it widened the spread between the average and lowest rate tiers by 16 basis points, to 4.17 percent. This spread is reflective of the price consumers might pay for having less-than-perfect credit histories.
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.