Average Credit Card APRs Still High Despite Fed Rate Cuts: What it Means

Average credit card interest rates still high despite Fed rate cuts. Here’s what it could mean for you.

Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Credit card interest rates have been on the rise in 2019. The rates for the third quarter of this year are higher than the level recorded by the Federal Reserve a year ago, in the third quarter of 2018.

While the average credit card interest rate is down slightly in the third quarter of 2019 (16.97%) from its peak in the second quarter (17.14%), it’s still higher than it was a year ago.

This is unexpected since the Federal Reserve cut interest rates twice this year. When the Fed cuts the federal funds rate, this typically affects the interest rates on things like credit cards.

So why are credit card interest rates still on the rise, and how could this impact you?

Read on to learn more.

Want to know more?

What’s going on with credit card interest rates?
What could this mean for you?

What’s going on with credit card interest rates?

Credit card interest rates have been on the rise since 2014, and they tend to trend in the same direction as the federal funds rate.

The gap between the federal funds rate and the average credit card interest rate remains wide even as the Fed rate has lowered in the past few months.

What’s the reason for this?

We can’t know for sure, but as previously reported, some credit card companies have increased the perks and rewards on their cards this year. But while perks like travel rewards and cash back are popular with consumers, they may not have been as profitable as card issuers expected them to be.

As the Wall Street Journal explains, banks seem to be increasing the margins between the federal funds rate and the interest rates they offer on credit cards to try to boost their profitability.

What could this mean for you?

If you have a credit card, you probably won’t see a lower interest rate on it while consumer demand for perk-offering cards continues. And if you’re in the market for a new credit card, you may see higher interest rates than you were used to seeing in the past.

In this higher credit card interest rate environment, it’s more important than ever to understand your credit scores and how they could impact the interest rate you’re approved for when applying for a new credit card.

About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer and editor and holds a bachelor’s… Read more.