Credit Card Rates Up, Even After Fed Rate Cut
While the recent cut in interest rates was reason for applause in the financial markets, it was just a finger in the dike in the credit card arena, according to the latest Credit Card Monitor rate survey by IndexCreditCards.com. Average credit card rates have increased in recent months, and the half-point Federal Reserve interest rate cut was more than offset by significant repricing from many credit card issuers.
The average rate for non-reward consumer credit cards has increased to 14.41%, up from 14.21% in July. For credit cards offering reward programs, the average rate jumped to 15.85% from 15.58%. (Those with the very best credit saw more modest increases, with average non-reward card rates increasing to 11.07% from 11.02% and reward card rates increasing to 13.36% from 13.14%.)
“In a time of uncertainty, credit card companies are tightening their belts,” says Justin McHenry, Research Director for IndexCreditCards.com. “Several issuers have stated they are preparing for greater credit card defaults in the near future, and it’s likely that the rate increases are a hedge against that.
“From July of 2006 to July of 2007 we saw very little movement in credit card interest rates, then suddenly almost every major issuer started tinkering with their offers—usually to the upside.”
Business credit card rates are climbing in step with consumer credit card rates. The average non-reward business credit card rate jumped to 12.61%, up from 12.27% in July. The average rate for business credit cards with rewards increased only slightly, to 14.25% from 14.22%.
One unexpected bright spot in the survey was student credit cards, whose rates actually decreased. The average student credit card rate is now 16.49%, down from 16.64%. “Student cards were one of the few products to be left untouched recently, so the Fed’s rate cut actually made a difference here,” says McHenry.
Financial institutions represented in the survey include Advanta, American Express, Bank of America, Capital One, Chase, Citi, Discover, National City, Pulaski Bank, U.S. Bank, Washington Mutual, Wells Fargo and more.
