The Death of Low APR Credit Cards – And Will They Rise Again?

Posted: 11 Nov 2010 04:15 AM PST

Since the financial crisis took hold, there has been less money for financial institutions to give out to borrowers. Add to this the new government regulations limiting credit card companies' ability to charge fees, and something had to give. One of those things is low annual percentage rate (APR) credit cards. The question is — can they ever make a triumphant return?

A few years ago, you could get a credit card with a single digit interest rate. Today, credit card companies that offer "low interest" credit cards usually feature an 11-14% APR. That's low? Not really, but since the Credit CARD Act of 2009 limits a credit card issuers' ability to generate revenue from fees, the bracket of "low" interest rate cards has moved up the scale.

Of all the new credit card reform rules, the most important is that arbitrary interest rate hikes are no longer possible – one of the many sneaky ways that credit card companies used to be able to profit from their customers. The new lever for making money is higher interest rates, plain and simple.

Credit card companies are scrambling to find additional ways to make money under the new rules. One strategy is pushing more premium cards to consumers that have high annual fees and mid-range APRs, but luxury perks like concierge service or free airline tickets. Even cards that once did not have annual fees are starting to implement them.

Further compounding this issue is that credit card companies are not gaining more accounts. Because people are uncertain about the economy, they are more likely to hold tight and try to pay off existing debt. This hurts profitability, and collectively inches up interest rates, turning what was the "mid-range" APR bracket into the "low" range, ever so slowly.

Will we ever see a return to a lower APR? It could happen, but at this point it's tied to the economy. Consumers are staying away from many of the offers that credit companies dangle in front of them, realizing they can lead to trouble. Credit card companies will need to continue offer rates that are labeled as "low," when in fact they really are not that low at all.

Daniel Cawrey is a freelance writer. In addition to writing about the consumer credit industry, he also runs a blog based on Google Chrome and Chrome OS.

Dollar Matters: What’s Happening to Your Money?

Posted: 10 Nov 2010 09:00 AM PST

A lot of interesting developments have been taking place in the world of money. The end of this year also marks changes to various tax laws in the U.S. Are interested in what is going on with your money? Check these blog posts out:

Dear Greenback, Meet the Redback – Your Replacement?

Clare at MoneyEnergy looks at what is happening in the world of the Chinese renminbi (also called the yuan). Could the Chinese currency replace the U.S. dollar?

What Happens When the Glass Is Too Big?

Over at Balance Junkie, 2 Cents muses about how consumption has probably skewed our perception of what economic growth should look like.

That is One BIG Mortgage

Big Cajun Man looks at how Canadians are increasingly holding more mortgage debt as the mortgage debt figure surpasses $1 trillion.

Federal Income Tax Brackets

At Smart Money Life, I look at the likely tax brackets for 2011. Watch out, though! They aren’t yet set in stone.

2011 Traditional And Roth IRA Contribution Limits And Phase Outs

Peter at Bible Money Matters has information on what is next for 2011 IRA contribution limits and phase outs. The year of the traditional to Roth rollover is almost done.

Life Insurance Blog