June 30, 2014

Current averages:

• Average consumer credit card rate, overall market: 17.12 percent
• Average consumer non-rewards credit card rate: 15.48 percent
• Average consumer rewards credit card rate: 17.83 percent
• Average student credit card rate: 17.56 percent
• Average business non-rewards credit card rate: 14.99 percent
• Average business rewards credit card rate: 15.31 percent

The U.S. bank prime rate was unchanged in the latter part of June, at 3.25 percent.

None of the credit card offers tracked by this survey changed in the second half of June, despite some economic news during the period that was potentially disturbing, both to the economy as a whole and credit card rates in particular.

Specifically, here are two announcements from the second half of June that could have future implications for credit card rates:

1. On June 17, the Bureau of Labor Statistics announced that the Consumer Price Index rose by 0.4 percent in May. Four-tenths of one percent may not sound particularly threatening, but a one-month increase at that rate projects to an annual inflation rate of 4.8 percent, in contrast with 2.1 percent inflation rate of the past 12 months. Perhaps even more disturbing is the recent trend, with the inflation rate increasing in each of the past three months. Credit card companies and other lenders need to charge a rate over and above the expected inflation rate in order to make a profit. Therefore, when the inflation rate creeps up, interest rates generally rise as well. Inflation has kept a very low profile in recent years, which is one reason interest rates have been unusually low. However, if the recent inflation trend is more than a temporary flare-up, it could signal the end of this low inflation — and low interest rate — era.
2. On June 25, the Bureau of Economic Analysis reported that real gross domestic product (GDP) shrunk at an annual rate of 2.9 percent in the first quarter. It had previously been estimated that the economy had contracted at a 1.0 percent rate during that quarter. Given the especially harsh winter, a 1.0 percent contraction could be dismissed as a temporary aberration, but a 2.9 percent rate of decline in GDP suggests there could be deeper problems with the economy. Given the importance of consumer credit health to credit card companies, they will nervously monitor the strength of the consumer, and start to raise rates if widespread credit problems become evident.

Of these two potential influences on credit card rates, inflation may prove the harder to shake. Throughout the second quarter, the economy showed evidence that it had shaken off the effects of its first-quarter slump. It remains to be seen, though, whether price increases will continue to escalate.

Consumer credit card rates

Because there was no change in either consumer non-rewards or rewards credit cards, the spread in average rates between the two categories remained at 2.35 percent. This generally higher rate on rewards credit cards represents a potential additional cost of rewards programs.

Student credit card rates

Student credit card rates remained unchanged, at an average of 17.56 percent.

Business credit card rates

With rates on business non-rewards and rewards credit cards remaining unchanged, the difference in average rates for these two categories remained just 0.32 percent. As with consumer cards there is a premium on business credit cards for rewards programs, but that premium is much smaller on business cards than on consumer cards.

Excellent credit vs. average credit

In addition to different credit cards offering different rates, a single credit card will often have different rate tiers, with the rate charged to a consumer depending on that consumer’s payment record and credit history. The average difference between rates offered to consumers with excellent credit and the overall average rate is currently 4.01 percent.

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 06/30/14