Interest rates on new credit card offers remained flat for the
second consecutive week, according to the CreditCards.com Weekly
Credit Card Rate Report.
The national average annual percentage rate (APR) on new card
offers stayed put at 14.92 percent Wednesday.
None of the cards that CreditCards.com tracks featured offer
changes this week. That includes changes to promotional balance
transfer offers, promotional APRs and annual fees.
The lack of changes to new card offers has made comparing credit
cards much more predictable than in previous years when issuers
tested different promotions and rates more often. In the past three
months, credit card short-term promotions on purchases balance
transfers have remained unchanged seven weeks out of 12. As a
result, consumers applying for a new card are more likely to see
the same promotional offer from week to week.
Consumers are also more likely to see the same APR (or APR
range) on a card they're considering. In the past six months, for
example, average APRs have remained unchanged 14 weeks out of 24.
Meanwhile, when average rates have moved up or down, the movement
has been by less than a tenth of a percentage point most weeks.
That said, the lowest possible rate on a new credit card may
still be higher than it was in previous years. In the past year,
average rates have moved below 14.7 percent only once and have
hovered closer to 15 percent for most of the year. By contrast, the
national average APR clocked in at just 11.94 percent during the
same period in 2009. Experts say that a combination of
sluggish economic growth and federal regulations (including the
Credit CARD Act of 2009) helped push average interest rates up.
Fed: No federal rate hike on the horizon until
The good news is that cardholders with a variable rate card are
unlikely to see a sudden rate hike any time soon. The Federal
Reserve Open Market Committee (FOMC) voted Wednesday to keep the
federal funds rate at rock bottom.
As a result, credit cards that are tied to the prime rate, which
is typically 3 percentage points above the federal funds rate,
won't see an automatic rate hike.
Most U.S. credit cards are variable rate cards, tied to the U.S.
prime rate. That means that when the Federal Reserve does decide to
increase the federal funds rate, most cardholders will see their
card APRs shoot up as well.
The rise, in turn, could be steep, warn experts. In mid-2008,
the Federal Reserve pushed interest rates way down in order to help
prop up an economy in free fall. Since then, the Federal Reserve
has declined to raise rates in an effort to encourage consumers and
small businesses to borrow.
However, prior to 2008, the federal funds rate stood at 4.25
percent -- 4 full percentage points higher than it is now. Experts
predict that when the federal funds rate does eventually go up, it
will do so by several points.
To get a sense of just how big a change that could make to
consumers' pocketbooks, consider this. If a cardholder borrows
$5,000 on a new credit card today at 14.92 percent interest and
pays $100 monthly, they will have to pay $2,867 in interest to
clear their balance. However, if the Federal Funds rate were raised
to 4.25 percent, that same cardholder would have to pay $2,059 more
in interest charges (or $4,926 total) to be debt-free. (Calculator:
How long will it take to pay off your credit card balance?)