Consumer Payment Card News

Rate Cut

Yesterday’s surprise rate cut by the Federal Reserve will help alleviate some of the pain by U.S. credit cardholders who mostly use cards that are linked to the prime rate. The reduction of the federal funds rate to 4.75% from 5.25% has already moved the prime rate from 8.25% to 7.75%. Given that more than 85% of U.S. credit cards are variable rate based, and consumers owe about $855 billion in major credit cards and store/gas cards, that prime rate drop should produce about $4 billion in interest rate savings for U.S. credit cardholders over the next twelve months. This translates in approximate savings of about $30 per year, based on to median card debt of $7000, according to cardtrak.com. The rate reductions on credit cards will phase-in with October and November statements, just ahead of the holiday season.

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Aug Platinum APRs: Aug Prime Rate
2001: 14.16% 6.75%
2002: 14.36% 4.75%
2003: 14.79% 4.00%
2004: 15.44% 4.50%
2005: 16.61% 6.50%
2006: 18.00% 8.25%
2007: 18.61% 8.25%
Source: CardWeb.com, Inc.

CORRECTION: CardWeb.com and cardtrak.com were quoted in today’s issue of
The Wall Street Journal and USA Today as saying yesterday’s Federal
Reserve rate cut would produce about $30 per month in average savings
for U.S. cardholders. The correct figure is about $30 per year. Both
firms regret the error.

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