August 15, 2011

Current averages:

• Average consumer credit card rate, overall market: 16.50 percent
• Average consumer non-rewards credit card rate: 14.72 percent
• Average consumer rewards credit card rate: 17.27 percent
• Average business non-rewards credit card rate: 14.47 percent
• Average business rewards credit card rate: 16.05 percent
• Average student credit card rate: 16.67 percent

The bank prime rate remained at 3.25 percent. Many credit card offers base their interest rates on changes in this rate.

Like the eye of a hurricane, the credit card market was strangely quiet in early August, while a whirlwind of troubling financial news shook the stock interest rates markets.

While a budget deal reached in time for the Aug. 2 debt ceiling deadline averted the threat of a U.S. government default, the financial markets weren’t impressed. Rather than reacting with relief, the stock market began to show signs of stress once the deal was announced. Then Standard & Poor’s lowered the nation’s credit rating, and the bottom really fell out of the market. In all, the stock market declined 6.6 percent in the first three trading days after the S&P credit rating downgrade.

Interest rates drop for T-notes

Meanwhile, publicly-traded interest rates slid steadily downward. Yields on 10-year Treasury notes dropped to 2.14 percent from 2.81 percent in the first 10 days of August. Significantly, Treasury yields had been declining even when the debt ceiling was still being held hostage in a political game of chicken. What investors are demonstrating is that it wasn’t the possibility of default that worried them, it was the state of the economy.

Those economic worries were deepened by the outcome of the budget standoff, since the deal puts all the burden of deficit reduction on spending cuts, and none on revenue increases. With the government already acting as a drag on employment (i.e., the government is shedding jobs while the private sector is adding them slowly), this promises to have a dampening effect on an economy that is already threatening to slip back into recession.

The economic gloom was confirmed by the Federal Reserve, which pledged to keep interest rates at extreme lows for another two years, an extraordinary vote of no confidence for the economy.

Credit card rates surprisingly steady

Almost improbably given this turbulent backdrop, credit card rates were unchanged for the first half of August in all five categories tracked by IndexCreditCards.com. No doubt, credit card executives need some time to sort out all the fast-changing information. Since lower interest rates are associated with a slowing economy, there might be an opportunity for credit card rates to fall, but credit card companies have to balance that against the increased default risk that comes with a weak economy. It is possible – likely, even – that different credit card offers will reflect different responses to this environment, so the coming months will be a good time to keep a close eye on the credit card market.

Consumer credit card rates

There were no changes in any of the consumer credit card offers tracked for this survey. As a result, the average rate for non-reward credit cards remained at 14.72 percent, and the average for rewards credit cards remained at 17.27 percent.

Business credit card rates

None of the business credit card offers tracked for this survey changed in the first half of August, leaving business non-rewards credit cards at an average of 14.47 percent, and business rewards credit cards at an average of 16.05 percent.

Student credit card rates

As with the other categories, there were no changes in the student credit card offers tracked for this survey. This left the average of these rates at 16.67 percent.

Good credit vs. average credit

With no changes in credit card rates, the spread between rates for customers with good credit and those with average credit remained unchanged at 4.02 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 institutions surveyed include American Express, Capital One, Chase, Citi, Discover, MasterCard, and Visa. 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 08/15/11