Interest rates are below pre-pandemic levels as 2021 begins
The average credit card interest rate is 20.20% as the new year begins, according to data collected by The Balance.
The average credit card interest rate changed very little as 2020 came to an end after a sharp decline earlier in the year following emergency federal rate cuts spurred by the pandemic. These days, credit card interest rates are steady, and the average APR is lower than it was a year ago.
- The average APR on credit card purchases is 20.20%, down 1.02 percentage points year-over-year.
- Store credit cards have the highest average interest rate.
- Business credit cards have the lowest average interest rate overall.
- Student credit cards have the lowest average interest rate among consumer cards.
Average Credit Card Interest Rates (APR) on Purchases by Card Category
Card type is just one factor that influences a credit card’s interest rate. To learn how The Balance categorizes card types, see the methodology at the bottom of this report. Other determining factors include your credit standing and the type of transaction your card is used for (more on that later in the “Average Interest Rates by Credit Card Transaction Type” section).
|Average Credit Card Interest Rates Based on Card Type|
|Current Average APR||6 Months Ago||1 Year Ago|
|All Credit Cards||20.20%||20.21%||21.22%|
|Business Credit Cards||17.81%||17.93%||19.15%|
|Student Credit Cards||18.83%||18.78%||20.61%|
|Cash-Back Credit Cards||19.09%||19.07%||20.12%|
|Travel Rewards Credit Cards||19.18%||19.21%||20.43%|
|Secured Credit Cards||19.87%||20.14%||21.22%|
|Store Credit Cards||24.24%||24.28%||25.46%|
A credit card issuer often has a range of APRs it might charge on a certain card, such as 15.99% to 27.99%. The better your credit score, the more likely you are to get approved for an interest rate on the lower end of the range, and vice versa.
What Happened in December
December 2020 was a quiet month for credit cards in terms of interest rate changes. The Balance only recorded one APR update and we added one relaunched card to our data pool, which was enough to nudge the overall average APR down a hair, but not notably.
U.S. Bank Card APR Adjustment
The U.S. Bank Harley-Davidson Visa Secured Card changed its APR from 22.99% to a variable range based on applicant credit: 13.99%-22.99%. This update brought the average secured card APR down 0.27 percentage points to 19.87%. The bottom end of the new APR range is lower than usual for a secured card.
This change was made by the issuer, not driven by Federal Reserve rate changes, which was the common driving force for credit card APR adjustments early in 2020. The central bank made two emergency federal funds rate cuts back in March when the coronavirus pandemic disrupted the U.S. economy, which drove down the prime rate most credit card APRs are based on.
The Fed plans to leave its benchmark rate near zero until the economy has more fully recovered, which, based on its latest projections, means credit card interest rates should hold pretty steady through 2023.
PenFed Credit Union Card Re-Launched
Pentagon Federal Credit Union finally relaunched its PenFed Pathfinder Rewards Visa Signature Card, which was taken down way back in 2019. The Balance had removed the card from our data pool when it didn’t relaunch as expected in early 2020, but we are tracking the offer once again. The PenFed Pathfinder card charges a 14.99%-17.99% variable purchase APR, which is low enough to impact the average travel card APR, and in turn, the overall average card APR.
Meanwhile, Consumers Are Keeping Debt In Check
Consumers have kept card debt below record levels throughout much of pandemic. After a brief uptick in September, the U.S. revolving debt balance (which refers primarily to credit card balances) has fallen slightly to $978.8 billion, according to the Federal Reserve's latest G.19 consumer credit report. That's the lowest level recorded since May 2017 and 11.55% less (or about $120 billion) than the record high balance of $1.099 trillion in February.
Average Interest Rates by Credit Card Transaction Type
There are three main types of transactions you can use credit cards for: purchases, balance transfers, and cash advances. APRs often vary depending on which of those transactions you make, and some issuers give new cardholders a break by offering low or 0% interest rates on some of those transactions for a limited time.
Purchase APR Deals
Applying for a new credit card to get a promotional purchase APR can be a good idea if you want to finance a large purchase but avoid paying interest. One-quarter (25%) of the cards we track for this report offer new cardholders introductory purchase APRs, which was the case throughout 2020.
- Typical offer length: On average, these offers last about 12 months, which has also been the norm. It’s tough to find purchase APR deals longer than 15 months. Only five cards in our database offer such lengthy 0% offers to new cardholders.
- Best 0% purchase APR deal: The longest introductory purchase rate offer is 20 months, which is offered by the U.S. Bank Visa Platinum Card.
- Credit score qualifications: If you want a 0% purchase APR, you’ll likely need stellar credit. A whopping 94% of such card offers in our database recommend applicants have good or excellent credit.
- When no-interest period ends: Cards with promotional purchase APRs charge an average ongoing rate of 18.23%.
Balance Transfer APR Deals
Moving debt from a high-APR credit card to one with a lower or limited-time 0% APR on balance transfers can reduce interest costs and help you pay down debt faster. There are fewer promotional balance transfer rates available now compared to this time last year, but nearly 26% of the cards tracked by The Balance are currently offering such deals to new cardholders.
- Typical offer length: The average length of balance transfer rate promotions is about 14 months, which is consistent with prior month averages.
- Longest balance transfer deal: The SunTrust Prime Rewards Credit Card gives new cardholders 36 months to pay off transferred debt at a reduced interest rate of 3.25%.
- Best 0% balance transfer offer: The longest 0% balance transfer APR deal is 20 months long, once again offered by the U.S. Bank Visa Platinum Card.
- Credit score qualifications: Much like 0% purchase APR offers, you’ll probably need good credit to qualify for a balance transfer deal. A steep 91% of the cards in our database with such offers recommend applicants have a good or excellent credit score.
- When intro period ends: We found the average ongoing APR of balance transfer transactions is 18.02%.
It’s common for cards to offer 0% or low interest-rate deals on both purchases and balance transfers. More than half the cards we track that advertise promotional interest rate offers offer new cardholders dual APR breaks for a limited time.
Cash Advance Rates
Most cards allow you to tap your available credit by using the card to withdraw cash at an ATM. About 88% of the cards we track allow cash advances, but that convenient feature comes at a cost.
- Average cash advance APR: 25.35%, which has changed little since April 2020.
- Highest cash advance APR: A steep 36%, as charged by both the Fortiva Credit Card and First PREMIER Bank Gold Mastercard.
On top of high APRs, cash advance transactions usually come with added fees and start accruing interest immediately, so avoid making them, especially if you are trying to minimize extra costs right now.
Penalty Interest Rates
If you fall seriously behind on your monthly credit card payments, exceed your credit limit, or if your bank returns a monthly payment, your standard purchase APR may be raised to the penalty interest rate. The penalty rate (also called the default rate) is the highest interest rate card issuers charge. While not all credit cards charge penalty rates, many do, including 107 of the cards surveyed for this report (about 34%).
- Average penalty APR: Based on our card sample, the average default rate is 28.58%, 8.38 percentage points higher than the average purchase APR. However, the average penalty rate has been slowly inching down since June 2020.
- Highest penalty APR: 29.99% is a popular penalty, as 51 cards in our database charge it. The highest penalty rate once exceeded 30%, but some issuers dialed back those steep rates between August and October 2020.
Pay your bill on time every month and you won’t have to worry about a high-cost penalty interest rate. If you can’t afford to make a payment, check with your card issuer to see what financial hardship options are available to protect your credit card APR and your credit score.
Average APR Based on Recommended Credit Score
Based on the card offer data collected by The Balance, credit cards marketed to consumers with bad/fair credit scores (below 670, according to FICO) have an average purchase APR of 23.74%, 4.5 percentage points above the average APR of cards marketed to those with good/excellent credit (19.24%).
A good credit score indicates to lenders that you can manage credit cards, loans, or debt repayment. Conversely, cards that accept applicants with lower credit scores charge higher interest rates to make up for the risk of default.
The type of credit score you see advertised on a card offer page (or in one of our reviews) is a recommendation. It’s a good benchmark, but your credit score is just one of several factors credit card issuers consider when deciding whether or not to approve a card application.
What Average Credit Card APRs Mean For You
There may be many important financial matters on your radar right now, but credit card interest rates are important to watch, especially if you are focused on paying down debt this year.
The Balance confirmed many banks are still offering relief options for those with financial difficulties, including skipped payments and waived fees with no negative impact on your interest rate or credit report. However, be mindful that even if your monthly credit card payments are deferred, those accounts are probably still accruing interest.
“Most if not all credit cards work on compound interest, meaning you do not pay one flat interest payment to borrow the money from the start of the loan, but the interest re-calculates every month based on the balance at that time,” said Jeremy Lark, senior manager of client services for GreenPath Financial Wellness, a nonprofit credit counseling agency.
If you haven’t been watching your balance, you may be in for a surprise when you start making payments again.
“Even if you haven’t used your credit card since the deferral, your balance may have increased during this time simply because of the compound interest,” Lark said in an email to The Balance. “This could require a larger minimum payment than you were used to making before the deferment.”
When making card payments, prioritize the balances you already have. Interest rates are stable right now, but even single-digit APRs can balloon debt costs over time.
“As balances grow and interest charges build up, it can make the debt seem insurmountable,” said Amy Maliga, financial educator with Take Charge America, another nonprofit credit and debt counseling provider. “Try to make more than the minimum payment each month to start chipping away at the principal and stop charging on that card until it’s paid off.”
This monthly report is based on credit card offer data collected and monitored on a rolling basis by The Balance for 317 U.S. credit cards in December 2020. Our data pool includes offers from 43 issuers, including the largest national banks. We track average interest rates on both a weekly and monthly basis for each card category, plus the overall average rate for all cards.
In July 2020 we updated our data collection and analysis to better reflect how and where consumers use their credit cards. These changes are reflected in the monthly change chart above, and the average card interest rate table above. Rates published prior to August 2020 in other articles may not reflect these changes.
How We Calculate APR Averages
We gather purchase and transaction APR information from current credit card terms and conditions. If a credit card APR is posted as a range, we first determine the average of that range, then use that number in our overall average rate calculations, so the statistics are true averages, not skewed toward the low or high end of a spectrum.
The overall average APR in this report is an average of the average APR in each category we track: travel, cash back, secured, business, student, and store cards.
How We Calculate Average Rates vs. the Fed
We look at interest rates by card category and transaction type to give a clearer view of the interest rate you can expect to pay based on the kind of card you're using or how you plan to use it. By comparison, the latest data from the Federal Reserve (from the third quarter of this year) puts the average credit card APR at 14.58%. However, the Fed calculates its rate based on voluntary reporting from 50 credit-card-issuing banks, and it's unclear what goes into those averages or what types of cards make up those averages.
The Fed also reports an average rate on accounts charged interest (meaning those that carry balances month-to-month), though its calculation gives more weight to accounts with high balances. In the second quarter of 2020, the average interest rate on credit cards accruing finance charges was 16.43%, down from a record high 17.14% reported in the second quarter of 2019.
How We Categorize Cards
We assign a category to each credit card in our database, and a card can go in only one category. Here's how we define them:
- Business credit cards: Cards small business owners can apply for and use to make purchases for their companies.
- Cash-back credit cards: Cards that offer you a little rebate on most purchases you make with the card.
- Travel rewards credit cards: Cards that allow you to earn extra points or miles on travel purchases, either with specific travel brands or on a variety of travel-related expenses. Cards that offer high-value travel redemption options are also part of this group.
- Student credit cards: Cards for college or graduate students who are at least 18 years old.
- Secured credit cards: Cards that require a security deposit that’s usually the same amount as the credit limit you’ll be given. These cards are aimed at helping people with poor credit or no credit history to build credit.
- Store credit cards: Cards you can use at particular retail stores, and sometimes other places as well. They often offer discounts or rewards for purchases made at the associated store (or chain of stores).
- Other: Cards that do not fit any of the following categories: business, cash back, student, travel, secured, and store. This includes cards that offer very few—if any—features.
Board of Governors of the Federal Reserve System. "Federal Reserve Issues FOMC Statement." Accessed Jan. 4, 2021.
Federal Reserve. "Consumer Credit Outstanding (Levels): Major Types of Credit." Accessed Jan. 11, 2021.
Federal Reserve. "Terms of Credit at Commercial Banks and Finance Companies." Accessed Jan. 4, 2021.
Federal Reserve. "Consumer Credit - G.19: About." Accessed Jan. 4, 2021.