The Fed helped push credit card rates higher just ahead of the holiday spending season, by increasing short-term interest rates by 25 basis points (0.25%). The prime rate, which is used by most credit card issuers, will hit 5.00%, compared to 4.00% at the beginning of the summer. Of the $680 billion owed on bank credit cards, approximately $600 billion accrues interest. Of the $600 billion in revolving balances, about 55% is subject to variable interest rates. Therefore, $330 billion in credit card balances are directly affected by today’s rate hike. A 25 basis points increase in the prime rate will cost consumers about $825 million in additional interest over the next twelve months. Collectively, the four rate hikes will cost consumers $3.3 billion in extra interest charges over the next year. For someone with an average balance of $3,000, the four rate hikes will add about $30 per year in additional interest. The new rates will go into effect before December for many cardholders. Most issuers use the last business day of the month as the index date for setting rates.
VARIABLE RATE INDEX DATES
Top Ten Issuers Ranked by Outstandings
1. Chase – Last business day of the month and two days prior to the closing date of the billing cycle
2. Citibank – Two days prior to the closing date of the billing cycle
3. MBNA – Last business day of the month.
4. Bank of America – Last business day of the month
5. Discover – Last business day of the month
6. Capital One – March 25, June 25, Sept 25 and Dec 25: applies day after the closing date of the billing cycle
7. American Express – Higher of the 1st or the 20th of each month
8. HSBC – Last business day of the month
9. Providian – 22nd day of each month
10. Wells Fargo – Higher of the 10th or the 25th of the month Source: CardWatch(R) (www.cardwatch.com)