Second-quarter card APRs for U.S.-issued major credit cards increased by 99 basis points (bps) between the second-quarter 2018 (2Q/18) and 2Q/19, as the U.S. prime rate increased by 75 bps. The average credit card rate charged by the nation’s Top 100 banks hit 15.13% in 2Q/19, compared to 14.14% for 2Q/18. Over the past five quarters, the U.S. prime rate increased from 4.75% to 5.50%, according to figures gathered by CardData.
Second-quarter rates for U.S. bank issued credit cards of 15.13% sets a new 19 year high of compared to 2000 when rates hit 15.71% Additionally, the spread between average credit card rates in 2Q/19 is 963 bps, compared to previous high of 974 in 2011, based on analysis by RAM Research.
Average credit card rates currently charged by issuers of Visa, Mastercard, Discover, and American Express are now at the highest level since 2001 and the spread between the prime rate and credit card interest rates is the highest point since 2011. If the Feds decide to raise short-term interest rates by 50 basis points (bps), the current credit card annual percentage interest rates (APRs) are poised to reap the highest spread over the prime rate since 1992.
The current credit card APR charged by the Top 100 banks stands at 15.13%, compared to 14.22% for 2018 and 12.89% for 2017. Eighteen years ago average credit card APRs hit 14.89% and steady declined as the prime rate froze at 4.00% from 2008 to 2014, according to data from the Federal Reserve.
Credit Card Rate Spread
In terms of the spread between average credit card rates and the prime rate, the current spread of 963 bps, compares 864 bps for 2017, and 860 bps for 2016. The highest recorded spread was in 1992 when the average credit APR was 18.22% and the prime rate was 6.00% for a spread of 1222 bps.
The spread is much wider for assessed interest rates charged for card accounts with balances, rising from 15.54% one-year ago to 17.14% for the second-quarter this year.
The year 1992 was a watershed moment in the credit card world when Household Bank and General Motors teamed in September to launch the GM Mastercard, featuring the first variable interest of prime +10.4% or 16.4%. This compared to the fixed 19.80% credit card APRs charged by the top U.S. issuers. The move drove the credit card APR spread down from 1222 bps in 1992 to 727 bps in 1997.
Pivotal Historical Moments
In 1992, more than 90% of all Visa and Mastercards carried fixed interest rates. Today about 95% carry variable interest rates.
The GM Mastercard was similar to move by AT&T and Synovus when the AT&T Universal Bank Visa and Mastercard was launched in September 1990 offering the first no-annual-fee-for-life Visa and Mastercard. The new card product led to an explosion of no annual fee Visa and Mastercard cards across the credit card industry.
In 1990, despite the competition from the no annual Discover card, more than 90% of Visa and Mastercard carried annual fees. Today, the only cards with annual fees offer either an exceptional low APR, a ton of rewards or cash-back.
Big 6 U.S. Visa/Mastercard Issuer APRs
Chase nominal credit card interest rates vary from 6.74% to 25.99%. Chase’s most common nominal annual percentage for all credit card accounts is currently 11.74% to 20.49% plus 5.50% prime rate, based on creditworthiness.
Capital One offers three nominal U.S. credit card interest rates of 9.74%; 16.24%; and 19.74% plus a 5.50% prime rate. Capital One’s most common nominal annual percentage rates are currently 17.99%; 22.74%; and 25.24%. The higher interest rates offered reflect the sub-prime (FICO below 660) portion of Capital One’s which currently represents about a third of its total U.S. credit card portfolio.
Bank of America, the nation’s third largest bank credit card issuer, offers nominal interest rates ranging from 9.99% to 19.99% plus a 5.50% prime rate. Bank of America’s most common nominal annual percentage rates currently range from 16.24% to 26.24%, based on creditworthiness.
Citibank offers nominal interest rates ranging from 10.24% to 20.24%, plus a 5.50% prime rate. Citibank’s most common nominal annual percentage rates currently range from 16.24% to 26.24%.
Wells Fargo offers nominal interest rates ranging from 9.24% to 21.74% plus a 5.50% prime rate. Wells Fargo’s most common nominal annual percentage rates currently range from 16.24% to 28.24%, based on creditworthiness.
U.S. Bank offers nominal interest rates ranging from 10.74% to 19.74% plus a 5.50% prime rate. U.S. Bank’s most common nominal annual percentage rates currently range from 16.24% to 25.74%.
Card Interest Rate Outlook
If the Feds decide to raise short-term interest rate in 2019, the current credit card annual percentage interest rates (APRs) are poised to reap the highest spread over the prime rate since 1992 and raise nominal or issued rates to near 30% for the top U.S. issuers.
The year-on-year (YOY) growth rate of consumer revolving debt (97% credit card debt) for May came in at 8.2%, compared to a revised 7.9% YOY for April, and a revised -2.3% YOY for March. On a quarterly basis revolving consumer credit grew at an annual revised rate of 3.2% in the first-quarter of 2018.
This likelihood of Fed rate increase is slim, but it is a tossup between no change and a 25 basis point cut. Cardholders need to be aware there is a time lag between the time the Prime Rate moves and the time it affects a credit card account, for rate cuts the earlier in the billing cycle is best notes Robert McKinley, Senior Analyst for CardTrak, CardFlash and CardData.
Top 100 U.S. Average Issued Bank Credit Card Rates
2Q/19: 15.13% (May)
U.S. Prime Rate Historical
1Q/18: 4.75% (12/14/17)
2Q/18: 5.00% (06/14/18)
4Q/18: 5.25% (09/27/18)
1Q/19: 5.50% (12/20/18)
Top 100 Average Credit Card Rate Spreads
2011: 974 bps
2012: 806 bps
2013: 791 bps
2014: 787 bps
2015: 859 bps
2016: 860 bps
2017: 864 bps
2018: 922 bps
2019: 963 bps (May)
Top 100 U.S. Average Accessed Bank Credit Card Rates
2Q/19: 17.14% (May)