The Federal Reserve boosted short-term interest rates by 25 basis points or a quarter of a point (0.25%) today. Today’s action will move most of the nation’s larger banks to raise the Prime Rate to 8.00% from 7.75%. Since more than 80% of bank credit cards have variable interest rate structures, the Fed action will invariably raise card rates. Of the 400 million bank credit cards carrying variable rates, about 300 million are tied directly to the Prime Rate. (Other indices used by card issuers include LIBOR [London Interbank Offered Rate], T-bills and the Discount Rate.) The approximate 300 million Prime Rate-based cards represent nearly $300 billion in card receivables or outstandings. Therefore a 25 basis (0.25%) point rise in the Prime Rate will cost American consumers $750 million in additional interest charges over the next year. The average American household with $5,000 in card balances will pay about $13 more over the next year. Since the rate action comes ahead of the start of the third calendar quarter, many consumers will see the change in their July or August credit card statements. For example, consumers who hold the Discover card or the GM MasterCard will see increased rates in their July statements. Customers of Bank One/First USA, who have Prime Rate-based cards, will not see the rate hike until their August statements. Meanwhile Citibank, AT&T Universal and MBNA cardholders will not see increased rates until October since both of these issuers adjust rates quarterly and have past their cut-off dates.
RATE ADJUSTMENT SCHEDULE FOR JULY STATEMENTS ISSUER RATE BASIS CYCLE CUT-OFF CitibankPrimeQuarterly June 15 BankOne/FUSAPrimeQuarterly June 22 MBNA PrimeQuarterly June 15 DiscoverPrimeMonthly June 30 Chase PrimeMonthly July 1 Bank of AmericaPrimeQuarterly July 1 Capital OneLiborMonthly July 5 Fleet PrimeQuarterly July 1 HouseholdPrimeMonthly July 1 ProvidianFixedNA NA
