US Credit Card Interest Rates Reach Highest Mark In 25 Years
loader
Financial News

US Credit Card Interest Rates Reach Highest Mark In 25 Years

EPF September 4, 2019

Even as the U.S. Federal Reserve ponders more interest rates cuts, the savings are not being seen by credit cards borrowers. Federal Reserve data – as of May 2019 – shows the average credit card interest rate for accounts assessed interest is 17.14%. The figure is the highest since the central bank began tallying the results.

So how did we get here?

Well, as the Fed began its rate-rising cycle in late 2015, credit card issuers followed suit by raising their credit card interest rates. However, credit card issuers began moving at a faster clip and the spread between the Federal Funds Rate and credit card interest rates continues to widen.

What’s Causing The Divergence?

In 2009, the Credit Card Accountability, Responsibility and Disclosure Act forbid issuers from raising interest rates on existing credit card balances. Thus, issuers began to charge higher interest rates at the outset as a way to compensate for the perceived default risk of borrowers.

Consumer behavior also plays a role. Rather than focus on the cost of borrowing, consumers usually pay more attention to the rewards or cashback features inherent with the card. As such, perks often take precedent over interest rates.

Another factor is the prime rate. Credit card issuers add a premium to the fluctuating figure as a way to determine the finalized rate. And while the prime rate moves in lock-step with the Federal Funds Rate, it’s not the best gauge of future credit card interest rates. Researchers found that credit card interest rates often increase more than three times the prime rate during the same period.

Additional charges also deserve attention. New fees or even fee increases can be used by financial institutions to offset a decline in the Federal Funds Rate. As such, interest savings don’t show up on your bottom line.

How Much Money Are The Banks Making?

According to the Federal Deposit Insurance Corporation (FDIC), member institutions have a combined $859.946 billion in credit card receivables on their balance sheets as of 2019:Q1. These receivables represent outstanding credit card loans that institutions expect to recoup or earn interest on in the future.

Data from the Consumer Financial Protection Bureau’s (CFPB) Consumer Credit Card Market study also found that 29% of credit card balances are paid-in-full each month. Analyzing from the opposite perspective, the findings imply that 71% of balances rollover each month and incur interest charges. And with the average credit card interest rate currently sitting at 17.14%, FDIC-insured institutions stand to rake in roughly $104.7 billion in interest in 2019.

A Growing Problem?

In our study of U.S. credit card debt, we found that borrowing has increased more than 42% since the lows of 2011.

Have a look:

Year:Total Credit Card Debt (Billions):
2008732
2009686
2010597
2011562
2012594
2013599
2014626
2015649
2016698
2017756
2018799

And as consumers continue to increase their appetite for credit card debt, it’s clear the product will remain a staple in financial institutions portfolios.

Elite Personal Finance

Recommended Articles

Debt

TEPSLF Denies 99% Of Borrowers Who Apply For Student Loan Forgiveness

EPF September 15, 2019

According to a study by the U.S. Government Accountability Office, the Temporary Expanded Public Student Loan Forgiveness (TEPSLF) program approved 1% of applications in 2018 – denying 99% of borrowers who applied for student loan forgiveness. In total, 54,184 applications...

Debt

More Than 27 Million US Residents Lacked Health Insurance Coverage In 2018

EPF September 11, 2019

The U.S. Census Bureau released its 2018 income, poverty and health insurance coverage reports on September 10, 2019. Researchers found that nearly 27.5 million U.S. residents lacked health insurance coverage in 2018 – up 1.9 million from the 25.6 million...

Privacy & Security

Privacy and Security

Elite Personal Finance takes your privacy very seriously.

We always use a secure and up-to-date SSL certificate to provide a private connection to our site.

Learn more

We have a very transparent privacy policy.

Learn more

We help you to be safe online by writing guides on safety, security and identity theft.

Learn more

In addition, we collect only minimum and necessary personal details on our site. In brief, visiting our site is ultimately safe and secure. However, we have to say that no one can be 100% secure online.

AS SEEN ON