September 30, 2013

Current averages:

• Average consumer credit card rate, overall market: 17.18 percent
• Average consumer non-rewards credit card rate: 15.48 percent
• Average consumer rewards credit card rate: 17.91 percent
• Average student credit card rate: 17.35 percent
• Average business non-rewards credit card rate: 14.74 percent
• Average business rewards credit card rate: 15.50 percent

The bank prime loan rate remained at 3.25 percent.

Credit card rates often exist in their own separate world, behaving differently from other interest rates. Notably, credit cards largely ignored the sustained trend of falling interest rates from 2008 through the beginning of this year. Then, while other rates were rising in recent months, credit card rates were mixed, with some rising and some falling. Most recently, as most interest rates were starting to ease a bit in late September, consumer rewards credit card rates rose.

Consider this: in the second half of September, 30-year mortgage rates fell by 15 basis points. Treasury bond yields also fell sharply. This backdrop of falling interest rates makes the rise in consumer credit card rates all the more striking.

More broadly, the rise in credit card rates also ran counter to the general financial market reaction to word that the Federal Reserve was continuing its aggressive program of buying Treasury and mortgage-backed securities in an effort to keep interest rates low. The Fed’s decision, reached in a meeting that concluded Sept. 18, reflects concern that the U.S. economy has yet to attain a healthy degree of momentum.

The Fed’s concern about the economy is a contrast with the third estimate of second quarter real GDP growth, which was released by the Bureau of Economic Analysis on Sept. 26. This estimate reported that real GDP grew by a solid 2.5 percent in the second quarter, up from 1.1 percent in the first quarter. Since then, however, the employment trend has weakened, and concerns about a federal budget stand-off and complications from the implementation of health care reform have further clouded the economic picture.

With credit card rates rising while all the macro-economic signals point to lower rates, the reason must be something more specific to the credit card industry – perhaps relating specifically to the cost of rewards programs, since that was the category experiencing the most recent rise in rates.

Consumer credit cards

Consumer rewards credit card rates rose by 12 basis points to an average interest rate of 17.91 percent, while consumer non-rewards credit cards held steady at an average rate of 15.48 percent. The rise in the consumer rewards rate pushed the overall average for consumer credit cards up to 17.18 percent.

The rise in rates for consumer rewards credit cards continues a trend that began early last December. Rates ended November of 2012 at 17.45 percent, and have since risen four times for a total increase of 46 basis points.

The rise in consumer rewards credit card rates increased the differential between those rates and rates on non-rewards cards to 2.43 percent. At various times this year, that differential has been as low as 2.09 percent and as high as 2.60 percent.

Student credit cards

After decreasing to their lowest point of the year in the last survey, student credit card rates held steady at 17.35 percent in the second half of September.

Business credit cards

Both business non-rewards and rewards credit cards remained unchanged in the most recent survey. Neither category of business credit cards has seen a change in rates since April.

Excellent credit vs. average credit

The spread between credit card rates for customers with excellent credit ratings and those with average credit narrowed by 10 basis points to 4.00. That’s the narrowest this spread has been since March, and suggests that the latest rise in consumer credit card rates was for reasons other than mounting credit concerns.

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.

Published 09/30/13