Credit card interest rates have fallen for the second week in a row to 14.92%. New credit card offers are tracked each week, with the average annual percentage rate used as an index to understand how interest rates affect credit card rates.
Credit card rates are variable. This means that the credit card rate is dependent on market interest rates, which move up and down based on a benchmark rate like the 10-year US Treasury rate of interest, or other benchmarks like LIBOR. Lower interest rates have become a boon for the credit card industry, as its average rate remains near the 14.9% average despite precipitously falling rates for US dollar borrowers.
Rates are often quick to move higher. In 2010, the average card rate was nearly 200 basis points higher, or 16.9%. Credit card companies are often slow to move rates down to adjust to the market rate of interest as the cost of borrowing can vary greatly from week to week. For example, in the past week, US Treasury rates for 10-year bonds rose from 1.47% to 1.65%, a move in excess of 12% of the yield in less than 5 trading days.
Consumers should get used to the low rates from credit card companies. The Federal Reserve indicated that it would keep rates low through 2013, and presumably as long as 2014. Lower rates have helped borrowers reduce their credit card debt loads while greatly improving their monthly cash flow. Millions of Americans have used low rates to reduce other debts, particularly mortgage debt, to make their standard of living more affordable, even if financed.
Of course, the average rate on credit cards is not at all a guide for the lowest-interest cards. Many issuers now offer prime borrowers credit cards with interest rates in the single digits. Rewards cards and store credit cards tend to be on the higher-end, with 20%+ rates being very common for purchases.