Credit card rates stabilize after recent jump

September 30, 2011

Current averages:

• Average consumer credit card rate, overall market: 16.80 percent
• Average consumer non-rewards credit card rate: 14.88 percent
• Average consumer rewards credit card rate: 17.63 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 16.59 percent

The US bank prime rate remained unchanged in the second half of September at 3.25 percent. Banks customarily base this prime lending rate on the federal funds rate, which was not targeted to change as part of the Federal Reserve's "Operation Twist," the latest effort to stimulate economic growth by attempting to bring longer-term interest rates down.

Credit card rates across all categories were also unchanged in the second half of September, which was a change from the first half of the month, when consumer rewards and non-rewards rates both rose.

While credit card offers didn't change in late September, this can still be a productive time to look for bargains in credit card rates. The stability in average credit card rates doesn't mean that individual card rates are consistent with those averages; within each category of credit cards, there are significant differences between the highest and lowest rates offered. The bigger the difference, the more consumers could benefit by looking for bargains.

For example, among credit card offers for customers with excellent credit, the biggest difference in the highest and lowest interest rates surveyed is 10.75 percent, in the business rewards credit card category. The biggest difference between an overall category average and the lowest rate available for customers with excellent credit is 7.63 percent, in the consumer non-rewards category. These are just two illustrations of the difference that actively shopping for rates can make; there are significant rate disparities within each category.

Consumer credit card rates

Consumer credit card rates stabilized in the second half of September, following their biggest increase of the year in the first half of the month. Non-rewards credit card rates remained at 14.88 percent, while rewards credit cards remained at 17.63 percent.

This return to stability creates a good opportunity for consumers who saw a rate increase in the first half of the month to reassess their credit cards. An increase could make a credit card no longer competitive with its category average, let alone with the best credit card rates in that category. Also, an increase in rewards credit card rates - which saw the biggest average jump in the first half of the month - could lead a consumer to re-evaluate whether the rewards a card provides are worth the extra interest rates usually charged by rewards cards.

Business credit card rates

Business non-rewards credit card rates were unchanged at 14.47 percent, while business rewards credt card rates remained at 16.05 percent.

As noted above, the business rewards credit card category has the largest difference between the highest and lowest rate offers. As a business matter, overpaying for credit card rates is unacceptable. This large spread between high and low rates should increase the urgency for business executives to double-check the rates they are paying.

Student credit card rates

The average rate for student credit cards remained at 16.59 percent. This rate has remained unchanged since late August, which is fortunate. With many college students now back at school, parents are less able to help their sons and daughters monitor things like credit card interest rates. Still, asking a student to pay attention to trends in credit card rates is a good opportunity to teach a personal finance lesson.

Good credit vs. average credit

The spread between credit card rates for people with strong credit and rates for those with average credit remained at 4.09 percent. If you feel your credit history has improved over the past several months, you should make sure you are receiving the lower rates associated with good credit.

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 9/30/11 (Modified 10/17/11)