Credit Card APRs Continue to Climb Despite Fed Rate Pause

Consumers face rising borrowing costs as banks shield against credit risk. Despite the Federal Reserve holding interest rates steady since December, credit card annual percentage rates (APRs) are climbing to record highs, driven by lender concerns over consumer risk.

In June, credit card interest rates increased for the third consecutive month, reaching their highest level since December, according to LendingTree. The average APR now exceeds 20%, with new card offers averaging 24.3%.

Man with credit card | Source: Pexels

“These are crippling rates that are compounding your debt at such a fast clip,” said Clifford Cornell, certified financial planner and associate financial advisor at Bone Fide Wealth in New York City.

Credit card APRs remained relatively stable for several years following the 2009 Credit CARD Act. However, they began to surge after the Federal Reserve started raising rates in 2015, effectively doubling from around 12% to current levels. Most credit cards carry variable rates, which typically track the Fed’s benchmark rate.

Even after the Fed paused hikes and made three cuts in 2024, card issuers have continued raising rates. “This unfortunate trend could continue in coming months,” said Matt Schulz, chief credit analyst at LendingTree.

Woman with credit card | Source: Pexels

Experts attribute the rise to heightened lender caution. “This is a sign of banks trying to protect themselves from the risk that is out there in these uncertain times,” Schulz explained. Charlie Wise, senior vice president at TransUnion, added that consumers seeking new credit during uncertain periods also contribute to rising APRs.

While higher APRs primarily affect borrowers who carry balances, relief may not be immediate even if the Fed cuts rates further. Instead, Schulz recommends options like balance transfer cards or lower-interest personal loans. “People have way more power over the rates they pay than they think they do,” he said.