APR cuts have subsided, but card offer changes continue during pandemic
The average credit card interest rate is now 20.09%, according to data collected by The Balance in June 2020.
That’s a tad lower than May’s average rate of 20.14%, but the decrease was driven by new card additions in our database, unlike prior month changes that were largely in response to emergency Federal Reserve actions.
In early spring The Balance watched annual percentage rate (APR) cuts roll in as credit card issuers caught up with emergency rate changes issued by the Fed in March. There were a few more rate cuts in May, but none in June. Average APRs are now pretty stable, but issuers are still making card offer changes by squashing balance transfer APR promotions or by raising a few ongoing interest rates during the pandemic.
- The average APR on credit card purchases is 20.09%, down 1.19 percentage points since January
- Store credit cards have the highest average interest rate.
- Business credit cards have the lowest average interest rate.
- 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 determines a credit card interest rate. To learn how The Balance categorizes cards based on type for this report, check out 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).
|Average Credit Card Interest Rates Based on Card Type|
|Current Average APR||Last Month||6 Months Ago|
|All Credit Cards||20.09%||20.14%||21.28%|
|Business Credit Cards||17.99%||17.99%||19.14%|
|Student Credit Cards||18.78%||18.78%||20.61%|
|Cash-Back Credit Cards||19.12%||19.08%||20.25%|
|Secured Credit Cards||19.96%||20.28%||20.97%|
|Travel Rewards Credit Cards||20.07%||20.06%||21.23%|
|Store Credit Cards||24.15%||24.20%||25.25%|
A credit card issuer often has a range of APRs it might charge on a certain card, such as 15.99% to 23.99%. 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 Has Happened: Card Issuers Change Offers in Response to COVID-19
Until last month, the major interest rate news during the pandemic was two emergency federal funds rate cuts and the APR drops that followed. There were no rate cuts in June, but a few new cards (such as the U.S. Bank Altitude Go Visa Signature Card and the Verizon Visa Card) entered the market, which we now include in our average rate calculations.
The most notable interest rate changes in June? Shrinking (and vanishing) promotional balance transfer APR offers.
More 0% Balance Transfer APR Offer Changes
In March there were 95 cards in our database advertising promotional balance transfer rate offers for new cardholders, and today there are 78. Introductory rate offers typically ebb and flow, but the recent changes have stood out.
A handful of American Express cash-back cards that once consistently offered competitive 0% balance transfer APRs ditched the deals entirely in June. Amex EveryDay Credit Card, Amex EveryDay Preferred Credit Card, Blue Cash Everyday Card from American Express, Blue Cash Preferred Card from American Express, and the Cash Magnet Card all just offer promotional purchase APR deals to new cardholders right now.
Shortly after those offer changes were made, The Balance staff saw messages in their own American Express accounts that indicated balance transfers may be limited for existing cardholders, too. We reached out to the issuer to confirm, and learned promotional rate cuts were just the tip of the iceberg.
“We are not currently offering balance transfers across all our card products,” according to a American Express spokesperson statement emailed to The Balance. “From time to time, we make adjustments to our offerings to ensure we’re managing risk for our customers and the company in a responsible way.”
Another notable balance transfer offer change in June came from Citi. The Citi Diamond Preferred and Citi Simplicity cards advertised 21-months-long 0% balance transfer APR offers for months, which made them the best cards for consumers wanting to make debt transfers from other high-interest cards. Today, the balance transfer APR offers on both cards are 18 months long, which are still generous, but not stand-out. Overall, fewer cards are offering balance transfer APR deals that last 15 months or longer these days.
There are still several cards that cut balance transfer rate offers back in April or May that have not re-added them, such as the Capital One Quicksilver Cash Rewards Card and the U.S. Bank Visa Platinum Card. The Chase Slate card, which was known for having a generous balance transfer offer, is also still not open for new online applications.
Just as you may be concerned about finances right now, so are banks, which is the driving force for all these offer changes. Issuers may be avoiding extra financial risk in the form of large consumer balances that may not be repaid.
“I think [banks] may be anticipating higher default rates and preparing for people who are seeking credit help while unemployed,” said Graciela Aponte-Diaz, director of federal campaigns for the Center for Responsible Lending. “They are being super cautious about what is coming.” Data on second quarter credit card delinquency rates are expected later this summer.
Small Purchase APR Increases
Since its last action on March 15, the Fed has abstained from additional federal funds rate changes. The fed funds rate is now resting at a 0%-0.25% range, and that will likely be the case until the economy starts to bounce back. Right now, the Fed expects to hold its benchmark rate (which drives the prime rate that many loan product APRs, including credit cards, are based on) steady through 2022.
However, in June The Balance actually observed several small credit card interest rate increases:
- HSBC Cash Rewards Mastercard: Variable APR range increased by 1% (was 12.99%-22.99%, is now 13.99-23.99%)
- HSBC Gold Mastercard: Variable APR range increased by 1% (was 12.99%-22.99%, is now 13.99-23.99%)
- Citi Simplicity: Variable APR range increased by 1% (was 13.74%-23.74%, is now 14.74%-24.74%)
- Citi Diamond Preferred Credit Card: Variable APR range increased by 1% (was 13.74%-23.74%, is now 14.74%-24.74%)
- Blue Cash Everyday Card from American Express: Low end of variable APR range increased by 1% (was 12.99%-23.99%, is now 13.99%-23.99%)
- Blue Cash Preferred Card from American Express: Low end of variable APR range increased by 1% (was 12.99%-23.99%, is now 13.99%-23.99%)
- American Express Cash Magnet Card: Low end of variable APR range increased by 1% (was 12.99%-23.99%, is now 13.99%-23.99%)
Those are small interest rate changes, but notable as the pandemic continues to impact the economy. Banks are being careful right now, in the midst of the global pandemic and a new recession. “I think issuers are and will get stricter with application approvals, lower limits, and higher interest rates,” said Aponte-Diaz. “Banks learned the hard way with mortgage lenders during the last recession, and I don’t see credit card companies following suit this time around.”
Meanwhile, Card Balances Fell as Spending Slowed Way Down
Consumers are still collectively carrying a huge amount of card debt, but the figure is much lower than it was just a few months ago.
The U.S. revolving debt balance (which refers primarily to credit card balances) has dropped to $995.56 billion, according to the latest G.19 consumer credit report. That's a 9.5% drop of nearly $104 billion from the record high balance of $1.099 trillion in February. The new May revolving debt figure also marks the first time the national balance has been below $1 trillion since September 2017.
The latest consumer credit report marks the third consecutive month of lower revolving debt balances. The recent, sharp declines are likely due to a very quick—and steep—drop in consumer spending as the coronavirus pandemic quickly changed how people were working and using money around the U.S.
For example, consumer income and spending data from the Bureau of Economic Analysis (BEA) shows spending dropped a whopping 12.6% in April, following a 6.6% drop in March. Those were massive changes, as that figure typically only moves a few tenths of a percent each month. On a brighter note, the newest consumer spending figures show people spent more in May (up 8.2% from April) as stay-at-home restrictions started to lift around the U.S.
Average Interest Rates by Credit Card Transaction Type
There are three main transaction types credit cards commonly offer: 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
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) can help with that. Roughly one-quarter (25%) of the cards we track for this report are offering new cardholders introductory purchase APRs, just like May and only slightly down from April (26%).
- On average, these offers last about 12 months, which has been the case since October 2019.
- The longest introductory purchase rate offer is 20 months, which is offered by two cards in our database: U.S. Bank Visa Platinum Card and U.S. Bank Business Platinum Card.
- Cards with promotional purchase APRs charge an average ongoing rate of 18.26%.
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. As mentioned earlier, fewer promotional balance transfer rates are available right now, based on the offer changes observed by The Balance in May and June.
- The average length of these balance transfer rate promotions is about 14 months, which is consistent with prior month averages.
- The longest offer overall is touted by the SunTrust Prime Rewards Credit Card, which gives you 36 months to pay off transferred debt at a reduced interest rate of 3.25%.
- The best 0% balance transfer APR deal is 20 months long, as offered by the U.S. Bank Business Platinum Card.
- Following the Citi card offer changes in June, the longest 0% balance transfer APR deal offered by a consumer card is now 18 months, as advertised by the HSBC Gold Mastercard, Discover it Balance Transfer, Citi Simplicity, Citi Diamond Preferred, and the Citi Double Cash Card.
- When promotional rate offers end, we found the average APR of balance transfer transactions is 18.26%.
Cash Advance Rates
Most cards allow you to tap your credit line by using the card to withdraw cash at an ATM, but that convenient feature will cost you. About 88% of the cards we track allow cash advances.
- The average APR on cash advances is currently 25.35%, nearly unchanged from May and April.
- The highest cash advance APR we found is still 36%. That steep cash advance APR is charged by both the Fortiva Credit Card and First PREMIER Bank Gold Mastercard.
On top of steep APRs, cash advance transactions usually come with extra fees and start accruing interest immediately, so avoid making them as much as possible, especially if you are trying to minimize extra costs during this uncertain time.
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 103 of the cards surveyed for this report (about 33%). The average penalty APR in our card sample is a steep 28.85%, just as it was in May. That’s 8.76 percentage points higher than the average purchase APR.
The Balance found that despite rate cuts made earlier this year, penalty rates may be as high as 30.90%, just as it was in April and May. That steep rate is charged by five Capital One business cards: Capital One Spark Cash for Business, Capital One Spark Classic for Business, Capital One Spark Miles for Business, Capital One Spark Cash Select for Business, and Capital One Spark Miles Select for Business. The highest consumer card penalty rate is 30.74%, as charged by the BMW Credit Card.
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 right now, 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
If you have less than perfect credit, chances are your card probably has above-average interest rate. Based on the card offer data collected by The Balance, credit cards marketed to those with bad/fair credit scores (below 670, according to FICO) have an average purchase APR of 23.97%, 5.01 percentage points above the average APR of cards marketed to those with good/excellent credit (18.96%).
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 marketed on a card offer page (or in one of our reviews) is a recommendation. It’s a good benchmark, but your credit score is only one of many things credit card issuers consider when deciding whether or not to approve a card application.
What Average Credit Card APRs Mean For You
We know there are many other things grabbing your attention these days, but credit card interest rates are still crucial numbers to watch, especially if you carry a balance on your card month-to-month. This is not a time to brush off numbers that can quickly add dollars to your credit card bill.
“COVID-19 is directly impacting consumer’s ability to pay even the most basic bills right now and credit card debt can’t be ignored,” said Jeff Arevalo, an expert with GreenPath Financial Wellness, a nonprofit credit counseling agency. “For people utilizing credit more and having problems making payments or meeting the minimum payments on credit cards, a high balance and accruing interest makes it more difficult to get out of debt.”
Right now, focus on managing the accounts and balances you may already have. Interest rates won’t likely go down anytime soon, and a generous 0% balance transfer deal may not be as easy to come by to help relieve interest cost burdens. “If card issuers are sending you information, read it. If you are in trouble, seek out deferment options that many are offering,” Aponte-Diaz said. “Call, call, call if there is an issue.”
The Balance found many card issuers are still offering a variety of 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 you aren’t making card payments right now, those accounts may still be accruing interest, and annual fees may still apply.
“Monitor your bills regularly. Monitor your credit report to ensure your creditors are reporting that you are current (unless you were already behind on payment before requesting assistance),” said Arevalo. “If you must utilize credit, try to use credit cards with low interest. Or, request a reduction in your interest rate as a hardship option.”
This monthly report is based on credit card offer data collected and monitored on a rolling basis by The Balance for 313 U.S. credit cards in June 2020. 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 14.52%. 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 15.78%, 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.
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