June 15, 2012

Current averages:

• Average consumer credit card rates, overall market: 16.94 percent
• Average consumer non-rewards credit card rate: 15.03 percent
• Average consumer rewards credit card rate: 17.76 percent
• Average student credit card rate: 16.98 percent
• Average business non-rewards credit card rate: 14.74 percent
• Average business rewards credit card rate: 15.40 percent

As of mid-June, the U.S. Bank prime rate remained at 3.25 percent, where it has been for over three years.

There were no rate changes in any of the credit card offers reviewed in this survey, but that stability should not be taken as a sign of a calm financial environment. Uncertainties persist about the U.S. economy, and even deeper concerns surround Europe. From an American point of view, it seems the best to be hoped for from Europe is an orderly recession, which would slow the U.S. economy by reducing demand for exports. More worrying, though, is the worst case scenario, which is that a chain reaction of defaults emanating from Europe would destabilize the U.S. financial system.

Another fast-changing development is the inflation situation. In mid-June, the Bureau of Labor Statistics released its monthly report on the Consumer Price Index (CPI), the most widely-watched indicator of U.S. inflation. This report showed that the CPI declined by 0.3 percent in May.

There is a good and a bad side to this decline in CPI. The reason for the decline was a steep decline in energy prices – most notably gasoline prices, which dropped by 6.8 percent in May. The good part of this is that it gives Americans some much-needed relief at the gas pump. Earlier in the year, sharply rising gas prices earlier in the year had prompted concerns that they would act as a drag on the economy, much as they did in the first half of last year.

The bad side of this is that these falling gasoline prices are themselves a sign that the economy has already slowed drastically. Overall, an easing in price increases is to be welcomed, but actual deflation is generally associated with a recessionary environment.

Similarly, the drop in the CPI carries good and bad news for credit card rates. Potentially, a lower rate of inflation gives credit card companies more room to drop their interest rates without hurting their margins. However, if the weak economy which is causing that inflation rate to fall – and even slipped into negative territory in May – heightens credit concerns, then only customers with excellent credit scores may see any interest rate relief. Other customers may actually see upward pressure on rates.

Consumer credit cards

Neither category of consumer credit cards changed in the first half of June. Consumer non-rewards credit cards remained at an average of 15.03 percent, after having dropped by 8 basis points in the previous survey. Consumer rewards credit cards remained at an average of 17.76 percent, where they have been since the end of April.

Student credit cards

Student credit cards continued a sustained streak of consistency. The average rate for these credit card offers remained at 16.98 percent, and hasn’t changed since early March.

Business credit cards

Business credit cards joined their consumer and student counterparts by remaining unchanged in this survey. Business non-rewards credit card offers remained at an average of 14.74 percent, where they have been all year. The average for business rewards credit cards last changed in early April, when the category average fell by 13 basis points to 15.40 percent.

Good credit vs. average credit

With no changes in any of the consumer credit card offers, the spread between rates for customers with top credit ratings and those for customers with average credit remained unchanged. However, this relationship will be a key variable to watch if growing uncertainty about the economy deepens credit concerns.

In total, IndexCreditCards.com surveys information from some 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 06/15/12