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.

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