Credit Card Interest Rates Stay Steady

The average annual percentage rate (APR) on new credit card offers held steady at 14.65% on Wednesday, according's Weekly Rate Report.

Though the national average remained static, Discover implemented a higher APR on the top end of the range for its Miles by Discover card this week.  The APR was bumped up from 15.99% to 16.99%. Discover did not elaborate on the reason for the change.

"We do not comment on our rate marketing practices for competitive reasons," Discover spokesman Matthew Towson said. adjusted the card's APR in its database.  However, since only the low ends of the APR ranges are used to calculate the national average, there was no movement.

Interest rates have bounced around in a tight range for the past five months, hovering around the 14.7% mark.  During that span, the national average APR peaked at 14.78 in mid-November -- the highest it's been in more than three years --and hasn't fallen below 14.63%. Six months ago, they were a half-percent lower, at 14.15%. In March 2008, when the recession had just started and before the Credit CARD Act of 2009 imposed restrictions on rate hikes, the national average APR on new offers stood at 11.11%.

Rising APRs mean real money for consumers. For example, a typical cardholder who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,459 to pay off the debt. That's $452 more than would have been required in March of 2008, when the national average was 11.11%. (Calculator: How long will it take to pay off your credit card balance?).

Issuers reluctant to actCard issuers may be hesitant to lower APRs until the economy shows further signs of recovery. The Federal Reserve's rate-setting committee made clear in a statement Tuesday that it doesn't see the economy being out of the woods, and "the unemployment rate remains elevated."  The means many Americans will continue struggling with credit card debt.

Linda Sherry, director of national priorities for Consumer Action, suggests that those in debt discontinue using their credit cards. Here's why: Say you have a $5,000 balance on a card with a 14.9% APR. If that card's rate changes to 19.9%, the new rate cannot be applied to that previous $5,000 balance. That's because the CARD Act says interest rate hikes can only be applied to future purchases, not earlier ones. So if you don't make any future purchases, the rate basically will never take effect.

The Fed also announced the federal funds rate will stay put at 0% to 0.25% which means the prime rate, a factor used in determining most Americans' credit card APRs, remains the same at 3.25%. The significance of this decision is that since the federal funds rate dictates the prime rate, APRs will not increase or decrease for now -- at least not because of the Fed. Card issuers may offer new cards at any rate they like.

Most credit cards are variable, but the CARD Act sharply limited issuers' ability to raise rates for good-paying customers. Two primary factors that cause APR changes include late payments of 60 days or more and governmental changes to the federal funds rate.  When the Fed eventually decides to raise the federal funds rate, APRs will follow suit -- the law allows issuers to pass along those increases. If issuers decide to boost  cardholders' rates on new purchases, the act requires banks to provide 45 days' notice

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