By Jeremy M. Simon
Credit card interest rates dropped slightly this week, after several banks made a commitment to abstain temporarily from additional rate hikes.
| CreditCards.com's weekly rate chart | |||
|---|---|---|---|
| Avg. APR | Last week | 6 months ago | |
| National average | 12.60% | 12.64% | 12.35% |
| Business | 9.69% | 9.80% | 16.74% |
| Low interest | 11.92% | 12.10% | 12.05% |
| Cash back | 12.36% | 12.36% | 13.90% |
| Reward | 12.76% | 12.61% | 12.19% |
| Balance transfer | 13.10% | 13.10% | 10.80% |
| Instant approval | 13.32% | 13.32% | 11.49% |
| Airline | 13.60% | 13.97% | 14.44% |
| Bad credit | 14.29% | 14.29% | 11.79% |
| Student | 14.45% | 14.45% | 14.90% |
| Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.) | |||
| Source: CreditCards.com | |||
| Updated: 10-15-2009 | |||
According to the CreditCards.com Weekly Credit Card Rate Report, the national average annual percentage rate on new credit card offers slid to 12.60 percent. The decline, which snapped a three-week run of rate increases, stemmed from the addition of cards to the CreditCards.com Rate Report database and not from APR decreases by major credit card issuers.
Major banks left APRs unchanged this week following recent pledges from Bank of America, Discover and Capital One to not raise interest rates ahead of the Credit CARD Act, which will make it tougher for lenders to hike interest rates on their customers. The act's major provisions take effect until February 2009.
Other major issuers have declined to make similar promises, and even the ones that have are still making other changes to their terms and conditions. For example, BofA said this week it plans to begin charging annual fees on some of its cards beginning next year.
Banks had been raising rates amid an economic and regulatory environment that has become increasingly challenging. "At the end of the day, they've got to match their risk with their portfolio," says Michael Rubin, author of "Beyond Paycheck to Paycheck." "If the interest rates are no longer politically palatable, another option -- as appropriate -- is to introduce annual fees," Rubin says.
While some banks are still making moves, the Federal Reserve is unlikely to do so anytime soon. The Fed influences credit card APRs by changing its key lending rate, called the federal funds rate. The bulk of credit cards have variable rates tied to the prime rate, which moves up and down based on fluctuations in the fed funds rate.
In minutes released this week from the central bank's most recent policy meeting, the Fed said its members "anticipated that inflation would remain subdued for some time," thus limiting the need to keep inflation in check by raising the federal funds rate. That outlook was reiterated in a speech by Fed Vice Chairman Donald Kohn, who noted that the risk of further economic declines currently outweigh the risk of inflation.
Rubin says that banks may also leave the APRs on their card products unchanged in the short term. "I think they got done what they've got to get done, so they're priced the way they need to for the moment," Rubin says.
