What Happened to Low Interest Credit Cards
People often mention to me that card rates are unusually
high these days. I can't help but think at times that these
folks are trapped in a delusion of having once lived in a
never-never land of sorts. I never recall the national
averages for credit cards being anything but high. It used
to be that the average fixed low interest rate credit card
had rates that hovered around 20 percent or so. If you were
lucky you could find some offers well below that mark, and
indeed you still can. A survey by the General Accounting
Office in 2005 clearly stated that about 80% of the 6
largest card issuers customers had cards with less that 20%
APR. So it appears that rates are not more historically
high as in the past. However, this era we now have many
cards that feature interest rates as high as 30 percent and
fees as high as $39 a pop!
This situation and it's current result harks back to the
early 1980s when a new concept called "Risk Based Pricing"
grew into it's own. This concept basically allowed card
issuers to offer cards with lower costs and fees to the
less risky cardholders while extending more extreme fees
and costs to those in the customer base who are more credit
challenged. Sometimes , due to anything from shifts in the
general health of the economy to simple incompetence of a
card firm's management, this model fails to remain static.
As a result the persons who are more creditworthy are left
having to cover the difference by means of manifested
increases to their interest rates and fees.
Generally, according to the bankrate.com website, credit
cards that are of the lowest interest fall into what is
called the "Platinum Card National Rate Average". While the
fixed rate has pretty much remained stable, even dipping
down below 10% in early 2006, the variable platinum card
interest rate has climbed from just over 11% to well over
13% since 2005. Judging from simple interest rates alone,
it would make simple sense to avoid variable platinum rate
cards to begin with and just stick with fixed rate ones
because at no time during the past several years was it any
cheaper at all to have a variable rate card based on the
National Averages.
It would seem logical that the deciding difference would be
the perks associated with most variable rate offers. Just
more proof that it is true that credit card rewards are
just what one gets for being charged too much interest in
the first place.
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A lifelong resident of Las Vegas, Nevada, Sam Donaldson is
the current staff writer for
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