Credit card interest rates hit record high

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Diving brief:

  • The average credit card interest rate in the United States at the end of last month jumped to 17.96%, the highest rate on record since January 1996, according to a report by the rating company and Bankrate edition. The investigation began in the 1980s.
  • The interest rate for the last week of August exceeded a more recent average weekly high of 17.87% set in April 2019, according to the report released by the company on Wednesday.
  • The credit card average has steadily increased over the past three months, company figures To display. “There is a significant cumulative effect to these rate increases” for credit card holders, The bank rate Ted Analyst Rossman said in an email Bankrate sent to Payments Dive.

Overview of the dive:

Higher credit card interest rates are a direct result of the Federal Reserve increase in interest rates to cool the economy and limit inflation, and they are likely to rise further as Fed Chairman Jerome Powell pursues a plan to keep raising rates.

“During the last rate hike cycle, it took three years for the Fed to raise rates by 225 basis points (from December 2015 to December 2018),” Rossman said in the email. “This time it only took them 4.5 months from mid-March to the end of July. And there is more to come. Rossman expected interest rates will rise another 150 basis points by the end of the year.

The hikes generally affect both new and existing balances, meaning most credit card holders now face rates around 225 basis points higher than they were six months ago. , Rossman said. He noted that this is a significantly increased burden for consumers with high balances.

For card-issuing banks, such as JPMorgan Chase and Capital One, this means more interest income, in addition to the growing benefits they derive from higher inflation, which increases the cost of goods and services purchased. which feed these balances.

Card issuers and card network companies, including Visa, Mastercard, American Express and Discover Financial Services, all benefit from any increase in interchange fees which are a percentage of amounts spent.

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