Card rates keep jumping even with no new Fed hikes

Credit card interest rates are climbing nonstop, even though the Fed has already cut its benchmark rate three times in 2024 and hasn’t touched it since December. The banks just don’t care.

According to LendingTree, the average APR jumped again in June for the third month in a row, reaching the highest level since last year. Bankrate also puts the average interest rate across all cards at just above 20%, while new card offers are hitting 24.3%, per LendingTree’s data.

That’s not a small bump. That’s painful. Clifford Cornell, a financial planner at Bone Fide Wealth in New York, said, “These are crippling rates that are compounding your debt at such a fast clip.” And that’s exactly what’s happening. For people who carry a balance, the interest is stacking up like a brick wall, month after month.

Card rates keep jumping even with no new Fed hikes

This isn’t something that came out of nowhere. Credit card APRs were flat for years after Congress passed the Credit CARD Act in 2009. That law kept things stable for a while. Then the Fed began lifting its key rate in 2015. Ever since, the interest rates tied to most credit cards—because they’re variable—have been slowly, then quickly, going up.

By now, average APRs have nearly doubled from about 12% to where they are today. That upward trend hit full throttle in 2022 when the Fed raised its benchmark 11 times starting in March. Rates on credit cards followed each of those hikes, just like they were designed to do.

But now, even after three Fed cuts in 2024 and a long pause since December, card rates are still climbing. Banks aren’t backing off. They’ve decided to keep pushing those APRs higher anyway, regardless of what the central bank does. Some lenders even said directly that the elevated rates would stay. Matt Schulz, LendingTree’s chief credit analyst, explained why the pattern is still moving upward: “This unfortunate trend could continue in coming months,” he said.

The reason? Risk. Banks are trying to protect themselves from borrowers who might default. Schulz called it a defensive move. “This is a sign of banks trying to protect themselves from the risk that is out there in these uncertain times,” he said. So they pass the risk onto consumers through steeper APRs.

Charlie Wise, a senior vice president at TransUnion, broke down what’s happening on the borrower side. He said people are applying for more credit during unstable times to shield themselves against future money problems.

“When there is uncertainty in the market, this often results in consumers seeking new credit to ensure they are prepared for any future financial hurdles,” Wise said. But when that happens, credit card companies respond by raising rates again.

Charlie also said that when more people with weaker credit take on debt, the system raises the average APR across the board. “If more balances are in the hands of riskier borrowers, those rates will trend higher,” he added.

Higher APRs don’t affect everyone, but most still get hit

Not every credit card user is feeling the sting. People who pay off their balance every month don’t really deal with APRs at all. The problem is for those who carry debt. That group is the one being buried right now.

Another twist? The APR hikes only affect new balances. If someone got a card years ago and hasn’t added to it, that old debt is still tied to the rate they signed up for. But new credit, new balances, or new applications? Those get slammed with the current rates—20% or higher.

Some folks are hoping a future Fed cut will save them. Charlie Wise said that’s not really how it works. “The reality is you could drop the fed funds rate by two full basis points and all you are doing is lowering your interest rate from 22% to 20%,” he said. “That’s not a material difference.” It still hurts.

Good credit doesn’t just help with new card offers. It affects the whole financial picture. People with strong credit scores can ask for better rates, and they’re more likely to be approved. The better the credit, the lower the interest rate on everything from credit cards to loans.

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