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Credit cards rates miss lower interest rate party
© St. Petersburg Times, Interest rates have fallen dramatically this year, but the benefits have been slow to accrue to credit card borrowers. Most are still stuck with double-digit rates. Banks have not dropped their card rates nearly as fast as their own cost of funds has gone down. Some adjust rates monthly, but some act only once a quarter and many cards have an interest rate floor below which rates will not drop. In addition, some cards carry fixed rates. "I don't think people's card rates are going to be going down much more," said James Daly, editor of Credit Card Management, an industry magazine published in Chicago. "It's almost like a plane landing. This plane is on the runway. It's not going to go any lower." He said this year's rate cuts are expected to save credit card issuers $23.8-billion as the gap widens between their cost of funds and the rates they are charging. "The latest (Fed) rate cut will almost entirely accrue to the issuers' bottom lines in reduced funding costs," he said. The Federal Reserve Board has slashed short-term interest rates four percentage points this year -- from 6.5 percent at the start of the year to 2.5 percent this week. The average prime rate, a key benchmark for bank lending, has gone down in lockstep -- from 9.5 percent to 5.5 percent. But credit card rates have taken their own path. Between a fourth and a third of all credit cards have "fixed" rates that don't adjust automatically. Those rates have fallen from 15.46 percent at the beginning of the year to 14.25 percent, according to surveys by Bankrate.com. The decline is mainly due to competition, said Greg McBride, a Bankrate.com financial analyst. The majority of cards have variable rates. The average rate on those cards has dropped from 17.09 percent at the beginning of the year to 14.12 percent, according to Bankrate.com's surveys. But the rate of decline has leveled off as more cards hit their minimum rate levels. "Going forward you will see rates drop but not to the extent that they have," McBride said. Both credit card issuers and analysts say it's up to consumers to pay attention to what card issuers are charging them. "We have 50.4-million cards out there and we have literally hundreds of thousands of different contracts with customers," said Thomas Kelly, a spokesman for Bank One/First USA in Chicago. "How much you are paying depends on what card you have, when you came in, if there's a floor and what floor you have. It's a complicated world." He said the wider interest rate spread isn't pure profit for credit card companies. "While card companies' cost of funds has been going down, our fixed costs, like processing of payments, statements, customer service and those things, have not been," he said. "The industry also has seen charge-offs rise in the last year or so."
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From the Times Business report
From the AP
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