Fort Smith, AR (PRWEB) November 11, 2008
Consumer education site CardRatings.com reported that average credit card rates rose slightly between Oct. 15 and Nov. 1 from 13.75 to 13.81 percent. Despite the increase, credit card interest rates are still significantly lower than they were this time last year -- in the third quarter of 2007, rates averaged 15.02 percent, or 1.32 percent higher than the Nov. 1 figure.
Given the Fed's active intervention in money markets in the last three quarters, it's not surprising that short-term interest rates, like those on credit card accounts, have drifted lower. However, consumers may wonder why the 3.25 percent in Fed rate cuts (excluding the most recent rate cut) has only translated to a decrease of 1.32 percent in their credit card interest rates.
CardRatings.com, a top source of credit card interest rate data, noted this discrepancy, and explained that consumers may lose out on lower rates for three reasons:
1. Rate Floors -- Rate floors define the minimum interest rate that can be charged on an account. When an account is being charged the floor rate, further improvements in overall interest rates will not be passed on to the cardholder.
2. Fixed Rates -- Many consumers opted for cards with fixed rates, or converted variable rate cards to fixed rate cards. Simliarly, card issuers can change variable rate accounts to fixed rate accounts with as little as 15 days written notice. Decreases in short-term interest rates will not be passed on to these account holders.
3. LIBOR Rates -- Cards with rates based on the London Inter-Bank Offered Rate, or LIBOR, do not move their rates with the prime rate or other indexes. According to MarketWatch, "elevated Libor rates can damage credit conditions for consumers and weigh on the broader economy." Fortunately, LIBOR rates, which had remained stubbornly higher in the face of recent Fed rate cuts, have come down. More cardholders may soon see rate relief.
CardRatings.com has been educating consumers about credit cards since 1998 and has been featured by hundreds of media outlets including The Wall Street Journal, Good Morning America, The New York Times and The Today Show. The award-winning site is a free, comprehensive resource where consumers can learn about fixed and variable interest rates, rate floors, financial indexes, debt relief, ID theft protection and more. CardRatings.com offers the most comprehensive free source for comparing credit card offers.