Average Credit Card Interest Rate Was 20.19% in September 2020
Purchase and balance transfer APRs were stable as high penalty rates inched down
This post is for historical reference. Specific product rates may have changed since publication. Please see banks' sites for current rates. For current rates and analysis, see Average Credit Card Interest Rates.
The average credit card interest rate was 20.19% in September 2020, according to data collected by The Balance.
The average credit card interest rate has changed very little in the past six months. The Balance recorded a few small card APR changes in September, but those were not significant enough to move the average rate.
Credit card interest rates moved more dramatically earlier this year following two emergency rate cuts made by the Federal Reserve when the coronavirus pandemic started to disrupt the U.S. economy. Over the summer, issuers cut back promotional balance transfer rate offers, but that trend has subsided. Penalty rates are the latest area of activity, as issuers have dialed back APRs that once exceeded 30%.
- The average APR on credit card purchases is 20.19%, down 1.05 percentage points since January, but little changed since April.
- Store credit cards have the highest average interest rate, while business credit cards have the lowest average interest rate.
- The highest-recorded penalty APR has dropped to 29.99%, 2 percentage points lower than the highest rate recorded in October 2019.
Average Credit Card Interest Rates (APR) on Purchases by Card Category
Card type is just one factor that influences a credit card 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|
|September 2020||August 2020||March 2020|
|All Credit Cards||20.19%||20.21%||20.75%|
|Business Credit Cards||17.78%||17.95%||18.43%|
|Student Credit Cards||18.83%||18.73%||19.69%|
|Cash-Back Credit Cards||19.11%||19.07%||19.72%|
|Travel Rewards Credit Cards||19.19%||19.19%||20.64%|
|Secured Credit Cards||20.14%||20.14%||20.70%|
|Store Credit Cards||24.16%||24.17%||24.90%|
What Happened in September 2020
September was a quiet month for credit card interest rates, much like August. Only a handful of credit cards tracked by The Balance changed purchase APRs, but in nearly all cases, interest rates were lowered or only nominally adjusted. For example, the Discover it Student Cash Back Card and the Discover it Chrome for Students cards charged a flat APR of 17.99% in September, rather than a variable range of 12.99% to 21.99%, based on applicant creditworthiness.
None of the September purchase APR changes were driven by rate changes made at a federal level. That was common earlier this year when card issuers spent several months reducing APRs in response to emergency federal funds rate changes spurred by the pandemic.
The fed funds rate (which drives the prime rate that variable credit card APRs are based on) is resting at a 0%-0.25% range, which will likely be true until the economy and employment have rebounded from the pandemic, per the latest Federal Reserve statements. Until then, credit card interest rate changes will be driven by issuing banks who want to adjust card costs to help cover potential lending risks, or appeal to consumers in a different way.
High Penalty Rates Are Trending Down
While purchase APRs have held fairly steady in recent months, penalty APRs have seen a bit more action. Penalty rates (also called the default rate) are the highest interest rates card issuers charge, and are only paid by consumers who have fallen seriously behind on monthly card payments or exceeded their credit limits. Until now, The Balance had recorded penalty rates higher than 30%.
The latest changes began in August, when Capital One lowered the penalty APR of several cards that had been the highest in our database. That brought the highest-recorded penalty rate down to 30.49% from 30.90%, as charged by several PNC Bank business cards at that time. Then in September, PNC Bank lowered its business card penalty rates to 28.99%. Today, the highest penalty rate in The Balance’s card database is 29.99%, 2 percentage points lower than the high recorded a year ago.
Unlike variable purchase APRs, penalty rates aren’t based on the prime rate, so when they move, it's at card issuers’ discretion. “The changes are interesting, because in theory, left to their own devices, the industry could just leave it alone,” Moshe Orenbuch, an analyst with financial research group Credit Suisse, said during a phone interview with The Balance. “It’s not an absolute amount, and no one opens a card because there is a lower penalty rate. It’s not a marketing tool.”
However, recent penalty APR cuts are in line with the Fed rate cuts made earlier this year. It’s possible some card issuers are moving default rates down in tandem with purchase rates, they just aren’t doing so as immediately, according to Orenbuch.
“Since there has been more oversight of that type of activity by the CFPB in recent years, it’s probably good practice to keep that in line with the general consumer card rates,” he said. “Otherwise someone could point a finger and say, ‘Oh look! You are trying to make more money off penalty rates.’”
Penalty interest rates were a more pervasive issue for consumers before the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act) was passed in 2009. That legislation put limits on how and why default rates could be applied.
Today, though not all credit cards charge penalty rates, many do, including 104 of the cards surveyed for this report (about 33%). The average penalty APR in our card sample is 28.66%, which is 8.47 percentage points higher than the average purchase APR. It’s also the lowest average recorded by The Balance since we began tracking rates in September 2019.
Consumers have managed to keep card debt below record levels in recent months. The U.S. revolving debt balance (which refers primarily to credit card balances) has dipped to $985.33 billion, according to the Federal Reserve's latest G.19 consumer credit report. That's a 10.28% drop of more than $113 billion from the record high balance of $1.099 trillion in February. It's now the lowest it's been since July 2017.
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. For the fifth consecutive month, roughly one-quarter (25%) of the cards we track for this report are offering new cardholders introductory purchase APRs.
- 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 was offered by the U.S. Bank Visa Platinum Card.
- Cards with promotional purchase APRs charge an average ongoing rate of 18.19%.
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 the beginning of 2020, but about 25% of the cards tracked by The Balance are currently offering such deals to new cardholders, which has been the case since May.
- The average length of these balance transfer rate promotions is about 14 months, which is consistent with prior month averages.
- The longest offer overall was 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 was 20 months long, once again offered by the U.S. Bank Visa Platinum Card.
- When promotional rate offers end, we found the average APR of balance transfer transactions is 18%.
Cash Advance Rates
Most cards allow you to tap your credit line by using the card to withdraw cash at an ATM. About 89% of the cards we track allow cash advances. But that convenient feature will cost you.
The average APR on cash advances is currently 25.35%, which has barely changed since April. The highest cash advance APR we found is still a steep 36%, as was charged by both the Fortiva Credit Card and First PREMIER Bank Gold Mastercard.
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 25.25%, 5.74 percentage points above the average APR of cards marketed to those with good/excellent credit (19.51%).
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.
This monthly report is based on credit card offer data collected and monitored on a rolling basis by The Balance for 310 U.S. credit cards in September 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.
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 below. Rates published prior to August 2020 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 second quarter of this year) 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.