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Credit Card Applications » News » Other » Bad Economy Keeps Credit Card Interest Rates Low

Bad Economy Keeps Credit Card Interest Rates Low

July 09, 2009
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The United State’s annual percentage rate (APR) on new credit card offers has dipped lower this week. However, industry analysts say that interest rates may bounce back given the news of the Federal Reserve’s plans to keep the lending rate lower than ever.

This week’s average APR was 11.94%, compared with last week’s 11.95%. The small difference is almost incomparable given that the national average six months ago was 11.78% or 0.16% lower.

The lower card rates were the result of the Federal Reserve’s decision on Wednesday to leave the federal funds rate between 0% and 0.25%. The Fed explained that it continues to anticipate the need for low federal funds rates given the current state of the economy.

Analysts say that the Fed’s decision did not come as a surprise. Specialists are also optimistic that an economic recovery will eventually lead to the government’s adoption of a different monetary policy which can lead to higher fed funds rate. The banks’ prime rate can then be increased, prompting a hike in the APR of credit cards.

Gregory Miller, chief economist of the SunTrustBank in Atlanta, says that the country is on the right track to economic recovery. The government’s actions could be a sign that it is focusing on the end of the economic downturn, he adds.

Banks around the nation are also assessing their credit card offers in light of new legislation by the Obama administration limiting APR increases and other techniques deemed to be unfair to cardholders. Because of this, analysts warn that credit car issuers may become less generous with cardholders to make up for the lack of flexibility they have to endure as a result of the new legislation.

Some experts say that to get around the new restrictions, banks will most likely introduce additional credit card fees instead of indiscriminately hiking up credit card rates. Elizabeth Rowe, director of banking advisory services with Mercator Advisory Group, Maynard, Mass., says that banks will probably experiment with a combination of new interest rates and fees in their card offers for the next three to six months. In the long run, though, banks will settle for higher fees, she adds.

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