The Reason Your Credit Card Interest Rate Keeps Going Up This Year

The average interest rate on credit cards keeps climbing, which is bad news if you carry a balance every month.
A woman is frustrated by her credit card.

If you have a credit card (or three) in your wallet, there's a good chance you're also carrying a balance on one of those cards from one month to the next. That means every billing cycle you not only shell out money for the goods and services you racked up on your cards, but also interest for the privilege of not paying off the balance in full. If that’s the case, be prepared to pay more: According to a survey from of 100 general purpose credit cards, the average APR is 17.01%, a rise from 16.15% a year ago,

When you pay your bill late or carry a balance forward on your card, the amount you pay in interest is determined by the annual percentage rate (APR) of the individual card, which varies depending on your personal creditworthiness and what the card issuer feels is a reasonable (to them) number—the latter of which has been climbing higher and higher this year. In fact, at the time of writing, the APR has risen another .06% to 17.06%.

Credit card issuers don’t raise APR rates on a whim, but rather peg them to the interest rates the Federal Reserve raises. The Fed more-or-less controls the interest banks charge each other when they borrow money from one another (something they do in order to have enough capital to stay solvent), and when the Fed makes that more expensive for banks, the banks pass on the cost to card holders by raising the APR (provided the card has a variable interest rate, which most of them do). In the aftermath of the Great Recession, the Fed kept these interest rates to almost zero to encourage lending and spending by banks and consumers alike, but as the economy has recovered the central bank has consistently hiked interest rates, leading to higher APRs.

A line graph showing the historic credit card interest rates.

The above graph shows the average APR banks charge on credit card accounts that carry a balance, as well as the average banks charge for all credit card accounts—including those held by people paying off their balance in full every month. While things get a little hairy around the time of the recession (from December 2007 to June 2009), the steady trend upward shows it's getting more and more expensive to carry that balance. It's always in your best interest to pay off your credit card balance in full each month to avoid messing with APR altogether, but if that isn't possible you should at least try to carry the debt on a low APR card—or even a card with a 0% APR introductory rate. Just make sure you pay off that balance before the 0% rate period expires, otherwise you'll find yourself back at square one making interest payments.

James Ellis

James Ellis is a Staff Writer for ValuePenguin, covering credit, banking, travel and other personal finance topics. He previously wrote for Newsweek, Men's Health, and other nationally-published magazines.

Comments and Questions

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Info about the following cards: American Express® Gold Card, Delta Reserve® Credit Card from American Express, Hilton Honors Surpass® Credit Card, American Express® Blue Sky, American Express® Green Card, The Amex EveryDay® Preferred Credit Card from American Express, The Plenti® Credit Card from Amex, Blue from American Express®, Platinum Card® from American Express Exclusively for Mercedes-Benz, Bluebird, Centurion® Card from American Express, Hilton Honors American Express Aspire Card, and Starwood Preferred Guest® American Express Luxury Card has been collected independently by ValuePenguin. The issuer did not provide the details, nor is it responsible for their accuracy.

Advertiser Disclosure: The products that appear on this site may be from companies from which ValuePenguin receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). ValuePenguin does not include all financial institutions or all products offered available in the marketplace.

How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).

{"endpoint":"\/newsletter\/subscribe","style":"blue","title":"Keep up with our news and analysis.","version":"sidebar"}