The Fed helped push credit card rates higher for April by increasing short-term interest rates by 25 basis points (0.25%) this week. The prime rate, which is used by most credit card issuers to set rates, hit 5.75% overnight, compared to 4.00% one year ago. Of the $697 billion owed on bank credit cards, approximately $600 billion accrues interest. Of the $600 billion in revolving balances, about 65% is now subject to variable interest rates. Therefore, $390 billion in credit card balances are directly affected by this week’s rate hike. A 25 basis points increase in the prime rate will cost consumers nearly $1 billion in additional interest over the next twelve months. Collectively, the seven rate hikes over the past year will cost consumers $6.8 billion in extra interest charges over the next year. For someone with an average balance of $3,000, the seven rate hikes will add about $50 per year in additional interest. The new rates, based on a 5.75% prime, will go into effect next month 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.carddata.com”:www.carddata.com)
* Effective in April: The BofA variable rate will be based on the prime rate on the last day of the month or the highest prime rate published by the WSJ within the immediately preceding three months.