APRs continue to inch down as credit card balances reach new record high
The average credit card interest rate is 21.26%, up a mere 0.01 percentage point from the previous month, according to data collected by The Balance in December 2019.
Average interest rates are largely unchanged as the Federal Reserve held off lowering rates in December. Prior to December, The Balance saw credit card annual percentage rates (APRs) inch down across the board as issuers responded to three consecutive rate cuts that began in August. Some banks were slow to respond to the Fed actions and made rate adjustments accordingly in December. Meanwhile, other banks changed course and nudged APRs up as 2019 came to an end.
If you’re holding onto old credit card balances or you racked up some holiday shopping debt, use the fresh start of the new year and this calm rate environment to tackle it once and for all. Average credit card interest rates are still high and, as The Balance has already seen, the cost of carrying card debt month-to-month may soon rise again.
- The average APR on credit card purchases is 21.26%.
- Store credit cards have the highest average interest rate.
- Business credit cards have the lowest average interest rate.
- Cash-back credit cards have the lowest average interest rate among consumer cards.
Card type is just one factor that determines a credit card interest rate. To learn how we categorize cards based on type for this report, see the methodology at the bottom of this page. Other deciding factors include your credit standing and the type of transaction you use the card for (more on that later in the “Average Interest Rates by Credit Card Transaction Type” section).
A credit card issuer often has a range of APRs it might charge on a certain card. 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.
Seasonal Rate Focus: Balance Transfer APRs
Moving credit card debt from a high APR card to one with a lower or limited-time 0% balance transfer rate can reduce interest costs and help you pay down debt faster.
It’s a great time of year to seriously consider a balance transfer card boasting an introductory APR offer if you have good credit and plan to take on a New Year’s resolution to pay off card balances. Most credit cards (about 75% of all cards in our database) allow cardholders to request balance transfers, and more than a quarter (about 29%) offer introductory balance transfer rates right now.
Most cards touting promotional balance transfer rates give cardholders at least one year to pay off a balance transfer under a significantly reduced or 0% APR, and some cards give you even more time than that. Only six cards in our survey are advertising promotional balance transfer rate offers that last less than 12 months.
Overall, the average length of balance transfer rate promotions is about 14 months. The longest offer, boasted by the SunTrust Prime Rewards Credit Card, gives you 36 months to pay off transferred debt under a low 4.75% APR. The Citi Simplicity Card and the Citi Diamond Preferred Card have the longest 0% balance transfer APR offers, as each last a mighty 21 months.
Even when generous balance transfer deals end, transferring pricey debt may still save you money on interest. The average standard APR for balance transfers is 19.29%, which is nearly 2 percentage points lower than the average purchase APR for all cards.
Average Interest Rates by Credit Card Transaction Type
In addition to balance transfers, credit cards can be used to make cash advances, and, of course, purchases. APRs can vary depending on which of those transactions you make, too.
Purchase APR Deals
If you want to finance a large purchase with a new credit card, finding a card that offers a promotional purchase APR (such as 0% for 15 months) is fairly easy. Purchase APR deals are common: More than one-quarter of the cards we track for this report offer new cardholders introductory purchase APRs right now.
- On average, these offers last about 12 months.
- The longest introductory purchase rate offer is an impressive 36 months, available on the SunTrust Prime Rewards Credit Card.
- Cards with promotional APRs on purchases charge an average ongoing rate of 19.29%.
Cash Advance Rates
Most credit cards allow you to tap your credit line by using the card to withdraw cash at an ATM, but such transactions aren’t cheap. Of the cards we track, 87% allow cash advances.
- The average APR on cash advances is currently 26.23%.
- The highest cash advance APR we found is 36%, charged by both the Fortiva Credit Card and First Premier Bank Gold Mastercard.
On top of steep APRs, cash advance transactions come with extra fees and start accruing interest immediately, so avoid making them if possible.
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, the card issuer may increase your standard purchase APR to the penalty interest rate. The penalty rate (also called the default rate) is the highest interest rate card issuers charge.
Not all credit cards charge penalty rates, but many do, including 106 of the cards surveyed for this report (about 35%). The average penalty APR in our sample of cards is a steep 29.10%—7.84 percentage points higher than the average purchase APR. To make matters worse, The Balance found penalty rates may be as high as 31.49%, which is charged by five cards issued by HSBC: HSBC Cash Rewards Mastercard, HSBC Platinum Mastercard with Rewards, HSBC Advance Mastercard, HSBC Premier World Mastercard, and the HSBC Premier World Elite Mastercard.
Pay your bill on time every month and you won’t have to worry about a high-cost penalty interest rate.
What Has Changed: Delayed APR Changes, Card Offer Adjustments
The Balance recorded a few notable card offer changes as 2019 wrapped up, between Dec. 1 and Dec. 31, 2019:
Delayed Responses to Fed Rate Cuts
Up until a few months ago, the Fed slowly increased its federal funds rate (which impacts the variable APRs of financial products like credit cards) while the U.S. economy recovered from the financial crisis that started in 2007. Starting on Aug. 1, 2019, the Fed made three 0.25-percentage-point rate cuts in three months. The Fed left the baseline rate unchanged in December.
However, some card issuers continue to tweak rates. While many card issuers respond quickly to Fed rate cuts and adjust card APRs accordingly, others take their time. The Balance found 12 issuers lowered standard APRs by 0.25 percentage points on some or all cards Dec. 1-31, 2019, to catch up with previous Fed rate changes: Bank of America, Comenity, Commerce Bank, Credit One, Merrick Bank, Navy Federal Credit Union, Pentagon Federal Credit Union, Petal, Synchrony Bank, TD Bank, USAA, and U.S. Bank.
Banks don’t have to notify you about rate changes when interest rates are variable and adjusted based on an index, as credit card rates are. That’s true whether the change is an increase or decrease. Watch your monthly statements to keep tabs on the cost of carrying credit card debt.
Slight APR Increases on Some Cards
Outside of the federal funds rate adjustments, The Balance noticed some cards ended the year on a higher note. A handful of credit card issuers—Discover, Pentagon Federal Credit Union, and U.S. Bank—have raised the purchase APRs of some of their cards.
U.S. Bank made the largest and greatest number of APR changes in December 2019, raising rates a half a percentage point on five cards and pumping up the range on another by 0.5 to 1.5 percentage points.
Pentagon Federal Credit Union bumped up the low end of the APR range for the PenFed Promise Visa Card half a percentage point. And Discover reworked the APRs of two cards completely. Both the Discover it Cash Back and the Discover it Chrome for Students cards used to have a variable APR that ranged from 14.49% to 23.49%, depending on your credit. But now both cards apply a flat 19.49% variable APR to purchases. That means consumers with good credit won’t have access to a lower APR if they are approved for any of these cards.
Card issuers can revamp offers at their discretion, so these adjustments aren’t out of line, but they’re worth noting and could indicate an upcoming trend. One possible reason for the changes is that some lenders are increasing the cost of borrowing to offset possible missed payments and delinquencies as consumers dig themselves deeper into debt.
Card Balances Remain High
Cardholders are still carrying a ton of credit card debt. The U.S. revolving debt balance (which refers primarily to credit card debt) first reached a historic peak of $1.081 trillion in July. It decreased slightly in August, but has been climbing since, and reached a new sky-high record of $1.088 trillion in October 2019. The latest G.19 report from the Fed puts the national revolving debt balance at $1.086 trillion.
What Average Credit Card APRs Mean For You
Even if your cards’ APRs have gone down over the past several months, credit card interest rates are still important numbers to watch. Regardless of what a card’s APR is now, credit card interest compounds quickly and your debt won’t get cheaper over time.
“Every dollar you pay in interest to a credit card is a dollar you have to earn but don’t get to spend,” says Todd Christensen, an accredited financial counselor and education manager of Money Fit, a nonprofit debt relief agency.
Use credit cards responsibly, and pay off card balances while your motivation to make positive life changes is high at this time of year—and before interest rates rise. On top of what card issuers may do to APRs on their own, the Federal Reserve is poised to start slowly raising its rates again in 2020, assuming strong economic growth continues.
To begin cutting credit card interest costs, focus on making small steps forward each month. For example, “Set up an automatic payment that is more than the minimum payment in order to accelerate your debt elimination overall,” Christensen advises. Then, “Identify which of your debts has the highest interest rate so you know which account to focus on repaying. There is no bad time to focus on paying down debts. Use the momentum created by the new year to get started.”
This monthly report is based on credit card offer data collected and monitored on a rolling basis by The Balance for 303 U.S. credit cards Dec. 1-31, 2019. Our data pool includes offers from 42 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.
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 puts the average credit card APR at 14.87%. 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 fourth quarter of 2019, the average interest rate on credit cards accruing finance charges was 16.88%, down from a record high 17.14% reported in the second quarter.
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.