U.S. Bank $600 Bonus U.S. Bank $600 Bonus U.S. Bank $600 Bonus
ADVERTISEMENT
en English
en Englishes Españolfr Françaisde Deutschit Italianopt Português
January 27, 2023 5:10 am CST
MoneysMyLife
SUBSCRIBE
  • Home
  • Bank Bonus
    • Best Bonuses
      • Best Bank Bonuses
      • Chase
      • Bank of America
      • U.S. Bank
      • BMO Harris
      • TD Bank
      • HSBC
    • Best Bank Bonuses w/o Direct Deposit
    • Best Free Checking Accounts
    • Best Free Business Checking Accounts
    • Best Savings Rates
    • Best CD Rates
    • All Bank Bonuses
  • Investing
    • Best Brokerage Offers
    • Best Real Estate Offers
    • Best Robo-Advisor Offers
    • Best Stock Brokers
    • All Investing Offers
  • Crypto
    • Best Crypto Offers
    • All Crypto Offers
  • Deals
    • All Deals
    • Referral Deals
    • Best Referral Deals
    • Best Contests & Sweepstakes
    • Best Freebie Deals
  • Credit Cards
    • Best Credit Card Bonuses
    • All Credit Card Deals
  • Advertiser Disclosure
No Result
View All Result
MoneysMyLife
  • Home
  • Bank Bonus
    • Best Bonuses
      • Best Bank Bonuses
      • Chase
      • Bank of America
      • U.S. Bank
      • BMO Harris
      • TD Bank
      • HSBC
    • Best Bank Bonuses w/o Direct Deposit
    • Best Free Checking Accounts
    • Best Free Business Checking Accounts
    • Best Savings Rates
    • Best CD Rates
    • All Bank Bonuses
  • Investing
    • Best Brokerage Offers
    • Best Real Estate Offers
    • Best Robo-Advisor Offers
    • Best Stock Brokers
    • All Investing Offers
  • Crypto
    • Best Crypto Offers
    • All Crypto Offers
  • Deals
    • All Deals
    • Referral Deals
    • Best Referral Deals
    • Best Contests & Sweepstakes
    • Best Freebie Deals
  • Credit Cards
    • Best Credit Card Bonuses
    • All Credit Card Deals
  • Advertiser Disclosure
SUBSCRIBE
No Result
View All Result
MoneysMyLife
No Result
View All Result
Home Credit Cards

How Come Credit Card Interest Rates Are So High?

Tony Jay by Tony Jay
January 23, 2023 10:51 pm CST
in Credit Cards
A A
0
50
SHARES
839
VIEWS
TwitterFacebook

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

Contents

  • 1 What is APR and prime rate?
  • 2 The inner workings of the Federal Reserve
  • 3 Exactly why are interest rates on credit cards so high?
  • 4 Ways to Lower Credit Card Interest Rates
  • 5 Bottom Line
Chase Total Checking $200 Bonus Chase Total Checking $200 Bonus Chase Total Checking $200 Bonus
ADVERTISEMENT

Are you tired of feeling like you’re getting charged an arm and a leg in interest on your credit card debt? You’re not alone. Credit card interest rates can be incredibly high, leaving many people wondering how they got so high in the first place.

In this article, we will take a closer look at the reasons behind credit card interest rates, including the risk associated with unsecured debt and the factors that contribute to determining rates. We will also explore how to manage your credit card debt and potentially lower your interest rates.

What is APR and prime rate?

APR stands for Annual Percentage Rate.

It is a measure of the cost of credit, expressed as a yearly interest rate. The APR on a loan or credit card takes into account not only the interest rate, but also any additional fees or charges associated with the loan or credit card. This makes it a more accurate and comprehensive measure of the true cost of credit than the interest rate alone.

Most credit card companies base their interest rates on a variable rate known as the prime rate, which in turn is tied to the federal funds rate, the central bank’s primary benchmark for monetary policy.

READ MORE: See the best credit card sign-up offers here.

The inner workings of the Federal Reserve

The Federal Reserve, also known as the Fed, is the central banking system of the United States. It is an independent government agency that operates with a dual mandate from Congress to promote maximum employment and stable prices.

The Federal Reserve System is made up of 12 regional Reserve Banks, located in major cities across the country, and the Board of Governors in Washington, D.C. The Board of Governors is appointed by the President and confirmed by the Senate and is responsible for the overall direction and supervision of the Federal Reserve System. Each Reserve Bank is responsible for the operations within its own district.

The Fed’s decisions and actions are influenced by the state of the economy, as well as by current and expected inflation and employment rates. They use different tools and mechanisms to achieve their goals which are set by the Federal Open Market Committee (FOMC), which consists of the seven members of the Board of Governors and five of the twelve Reserve Bank presidents.

The Fed’s desired rate for short-term lending between banks is known as the target federal fund rate. Rather than setting an explicit rate, the Fed sets a target. When the Fed is trying to stimulate the economy, it will attempt to maintain interest rates low.

With 2019 came the beginning of a low interest rate environment as fears of a global downturn took hold. As the epidemic spread in 2020, the Fed continued to lower its target rate, eventually settling on a range of 0% to 0.25%.

The Fed takes further actions, such as purchasing assets, to inject more cash into the economy and reduce interest rates. During the recession that began in December 2007 when the collapse of the housing market had an effect on the global financial system, for instance, the Fed took action to stimulate the economy. Additionally, its goal rate dropped to the 0% to 0.25 % range during that time as well.

READ MORE: Best Bank Welcome Bonuses

Exactly why are interest rates on credit cards so high?

You may be asking why your credit card company is charging you such a high interest rate while the federal funds rate is low. The fact is, the national average for credit card interest rates has risen beyond 19 percent in recent times. This is a significant markup given that the U.S. prime rate was 7% in mid-December of 2022.

So, why do credit card companies add such a huge premium to their rates?

First, credit card debt is different from other types of loans in that it is not backed by anything. Unlike a mortgage loan, which is secured by your property, this loan has no such backing. Lenders have the right to repossess homes that have been secured by mortgage loans that have gone into default.

A car loan lender can repossess the vehicle if the borrower fails to make payments as agreed. Not only that, but Federal Reserve data shows that credit card loan default rates are often higher than rates for other consumer loans.

The Credit Card Accountability, Disclosure, and Reform Act (CARD) of 2009 included further safeguards for cardholders. Because of the increased dangers this poses for credit card companies, interest rates tend to be higher.

As one example of consumer safeguards, they must provide advanced warning of any increase in interest rates (interest rate adjustments issuers make that do not come from Fed activities) and any other material changes.

READ MORE: The Most Dangerous Credit Card Scams To Watch For

Ways to Lower Credit Card Interest Rates

While it’s true that consumers have little control over the broader economic conditions that ultimately determine how much the Federal Reserve will raise or lower interest rates, we may negotiate for a lower rate on our credit card debt. Among the many possible approaches are:

  • Good credit scores begin with responsible credit management. Those with higher credit scores are seen as less of a danger by issuers in terms of default, and as a result, they are offered more favorable interest rates.
  • If you have a high interest rate and a credit card balance, you may reduce the amount of interest you pay over time by making minimum payments as often as possible. Any amount paid toward the obligation, regardless of when it was owed, will reduce the total amount of interest paid since interest is added to the principal balance each day.
  • You may be able to negotiate a lower interest rate with your card issuer if you have had the card for a while. Since it values your continued patronage, you may perhaps negotiate a lower price.
  • If you anticipate continuing to carry a burden for some time, you may want to consider transferring the amount to a credit card that offers an introductory 0% APR on balance transfers for a limited time. To avoid being back in the same position of having to deal with a high interest rate, you should make a concerted effort to pay off the debt before the promotional 0% APR period ends.
  • It is also possible to consolidate high-interest credit card debt into a lower-rate home-equity loan or personal loan.

READ MORE: Best $1,000 Credit Card Bonus Offers

Bottom Line

The greatest thing people can do now, as average credit card interest rates surge, is to manage our debt systematically. You should try to pay your credit card balance in full each month to avoid paying interest altogether.

And you should consider speaking with your credit card issuer to see if they can offer you a lower APR as a loyal customer, or negotiate a better rate.

Read more: See the best bank promotions here and the best investing promotions here.

Tags: banking guidescredit card guides
Tweet13Share20Share4Pin5SendShareSend
BMO Harris $350 Checking Bonus BMO Harris $350 Checking Bonus BMO Harris $350 Checking Bonus
ADVERTISEMENT
Previous Post

Freebie: Microsoft Store Offer Top Free Games

Next Post

Steps To Take If Your Bank Account Gets Hacked

Tony Jay

Tony Jay

I'm all about finding new finance-related promotions and bonuses here at MoneysMyLife. Contact me here.

Recommended For You

Visa SavingsEdge: Discounts on Purchases With Visa Business Credit or Debit Cards

January 26, 2023 11:10 pm CST

Visa SavingsEdge for Business is a program offered by Visa that allows eligible business cardholders to receive discounts on purchases made with their Visa business credit or debit...

Read more

Bilt Rewards: Get 100% Bonus Transfer to Hawaiian Airlines & Double Points on Rent Day – Effective 2/1/23

January 26, 2023 10:29 pm CST

Bilt Rewards has a monthly promotion, called Bilt Rent Day, where members earn more points and access exclusive promotions on the first day of every month. On February...

Read more

IHG Rewards Club Premier Credit Card Bonus: 175,000 Points (Best Offer Ever)

January 26, 2023 9:56 pm CST
IHG Rewards Club Premier Credit Card Bonus: 175,000 Points (Best Offer Ever)

The IHG Rewards Club Premier Credit Card from Chase has a sign-up bonus for 140,000 175,000 points when you spend $3,000 within the first 3 months (ways to...

Read more

Best M1 Finance Bonuses: $50, $500, $4000, $10000 Offers

January 26, 2023 4:39 am CST
M1 Finance

Read about the latest M1 Finance promotions and bonus offers here. M1 Finance (m1finance.com) is a free automated investing "robo-advisor" platform that lets you create a portfolio from...

Read more

Apple Card Bonus: $100 Daily Cash Bonus for Adding An Authorized User [Targeted] – Ends 2/6/23

January 25, 2023 8:55 pm CST

The Apple Card is offering targeted cardholders a $100 Daily Cash bonus when they add an authorized user to their account by 2/6/23, and the new user spends...

Read more
Next Post

Steps To Take If Your Bank Account Gets Hacked

Freebie: CRICUT 11 Books in 1 - The Complete Step-By-Step Guide for Beginners with the Best Tips and Tricks

Best Freebie Deals of January 2023 - Get Free Stuff!

Leave a Reply Cancel reply

Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
Disclaimer: These responses are not provided or commissioned by the bank advertiser, credit card issuer, hotel, airline or other entity. Responses have not been reviewed, approved or otherwise endorsed by any of the entities included within the post. It is not the bank advertiser's or any other entity's responsibility to ensure all posts and/or questions are answered.

Your email address will not be published. Required fields are marked *

Chase Business Complete $300 Bonus Chase Business Complete $300 Bonus Chase Business Complete $300 Bonus
ADVERTISEMENT
TD Bank $300 Bonus TD Bank $300 Bonus TD Bank $300 Bonus
ADVERTISEMENT
ADVERTISEMENT
Get new posts by email:

Featured Articles

M1 Finance

Best M1 Finance Bonuses: $50, $500, $4000, $10000 Offers

January 26, 2023 4:39 am CST
Bank of America

Bank of America Checking Account $100 Bonus Offer – Ends 6/30/23

January 26, 2023 4:37 am CST

Best Axos Bank Bonuses, Promotions of January 2023

January 26, 2023 4:36 am CST

Best Bank Bonuses, Promotions of January 2023

January 26, 2023 11:59 pm CST
Featured Chase Image

Best Chase Bank Bonuses of January 2023 (up to $2000!)

January 16, 2023 11:30 pm CST
BMO Harris Bank

Best BMO Harris Bank Bonuses, Promotions of January 2023

January 16, 2023 11:29 pm CST
Featured Chase Image

Chase Total Checking® Account $200 Bonus Offer [Nationwide] – Ends 4/19/2023

January 16, 2023 10:54 pm CST

J.P. Morgan Self-Directed Investing Up To $700 Bonus – Ends 4/13/23

January 13, 2023 9:39 pm CST

Public.com Bonus: $300 In Free Stock, Up To $10,000 Brokerage Transfer Offers

January 13, 2023 6:51 am CST
U.S. Bank Bonus

U.S. Bank Smartly™ Checking and Standard Savings up to $600 Bonus – Ends 2/7/23

January 26, 2023 4:11 am CST
Best Online Mattress Promotions, Offers, Discounts of 2023

Best Online Mattress Promotions, Offers, Discounts of 2023

January 1, 2023 12:19 am CST

Best Cryptocurrency Bonuses, Promotions of January 2023 (Free Bitcoin & More)

January 25, 2023 12:48 am CST
TD Bank

Best TD Bank Bonuses, Promotions of January 2023

December 31, 2022 11:50 pm CST
Robo Advisors

Best Robo-Advisor Promotions, Offers of January 2023

December 31, 2022 11:50 pm CST
HSBC Bank

Best HSBC Bank Bonuses, Promotions of January 2023

December 31, 2022 11:49 pm CST
Best Money Transfer Services Intro

Best Money Transfer Service Promotions, Bonuses, Offers of January 2023

January 26, 2023 4:15 am CST
Brokerage and Investing Promotions from moneysmylife

Best Stock Broker & Investing Promotions, Bonuses of January 2023

January 13, 2023 9:59 pm CST
Best Free Checking Account Offers (No Monthly Fees) of January 2023

Best Free Checking Account Offers (No Monthly Fees) of January 2023

January 4, 2023 3:47 am CST
The Best Referral Deals on moneysmylife

Best Referral Programs, Offers, Deals to Make Money – January 2023

December 31, 2022 10:55 pm CST
Chase Bank

Chase Business Complete℠ Banking $300 Sign-Up Bonus [Nationwide] – Ends 2/16/23

January 26, 2023 4:14 am CST
TradeStation

TradeStation Promotions: $150 Cash Or $150 Bitcoin Offer

December 18, 2022 1:07 am CST
Bank of America $100 Checking Bonus Bank of America $100 Checking Bonus Bank of America $100 Checking Bonus
ADVERTISEMENT

Search by Categories

  • Bank Promotions
  • Banking
  • Credit Cards
  • Cryptocurrency Promotions
  • Deals
  • Featured
  • Investing
  • Other
  • Referral Promotions

Latest Articles & Updates

Givers Review: Savings & Support Platform For Family Caregivers To Access Benefits and Resources

January 27, 2023 4:05 am CST

Dave.com Review: One-Stop Shop For Managing Your Money And Avoiding Overdraft Fees

January 27, 2023 2:41 am CST

Discovery Puppy Bowl: Kitty Halftime Show Sweepstakes | Win $5,000 Cash – Ends 2/13/23

January 27, 2023 12:29 am CST

Samuel Adams: Cold Snap Day Sweepstakes | Win $10 e-Gift Card – Ends 2/2/23

January 27, 2023 12:25 am CST

Freebie: Free $100 Dick’s Gift Card & Free Pickup For Members With Select Peloton Purchase

January 27, 2023 12:19 am CST

Newsletter

Get new posts by email:

Recent Articles

Chance To Win $25,000 With Wealthfront Sweepstakes – Ends 02/18/2023

Chance To Win $25,000 With Wealthfront Sweepstakes – Ends 02/18/2023

January 27, 2023 12:08 am CST

Freebie From Epic Games: Adios PC Game – Ends 2/2/23

January 27, 2023 12:06 am CST

Topics

Categories

Banking Bank Promotions Credit Cards Cryptocurrency Promotions Deals Featured Investing Other Referral Promotions

*Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card and banking companies from which MoneysMyLife.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MoneysMyLife.com does not include all credit card and banking companies or all available credit card and banking offers. This content is not provided or commissioned by the bank advertiser. Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. This site may be compensated through the bank advertiser Affiliate Program.

© 2022 MoneysMyLife. All rights reserved.

  • About
  • Advertiser Disclosure
  • Disclaimer
  • Privacy
  • Terms
  • Contact
No Result
View All Result
  • Home
  • Bank Bonus
    • Best Bonuses
      • Best Bank Bonuses
      • Chase
      • Bank of America
      • U.S. Bank
      • BMO Harris
      • TD Bank
      • HSBC
    • Best Bank Bonuses w/o Direct Deposit
    • Best Free Checking Accounts
    • Best Free Business Checking Accounts
    • Best Savings Rates
    • Best CD Rates
    • All Bank Bonuses
  • Investing
    • Best Brokerage Offers
    • Best Real Estate Offers
    • Best Robo-Advisor Offers
    • Best Stock Brokers
    • All Investing Offers
  • Crypto
    • Best Crypto Offers
    • All Crypto Offers
  • Deals
    • All Deals
    • Referral Deals
    • Best Referral Deals
    • Best Contests & Sweepstakes
    • Best Freebie Deals
  • Credit Cards
    • Best Credit Card Bonuses
    • All Credit Card Deals
  • Advertiser Disclosure

© 2022 MoneysMyLife. All rights reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.