Delinquencies spike with record-high credit card interest rates
Data: St. Louis Federal Reserve; Chart: Axios Visuals
Since 2014, credit card interest rates have risen 4.4 percentage points, representing a 35% increase in costs for consumers, data from NerdWallet shows, despite the fact that U.S. interest rates remain at historical lows.
Why it matters: That adds significantly to the interest costs for consumers who carry credit card debt from month to month, and the average household now pays more than $1,150 a year in credit card interest.
On the bright side: Consumers may get some respite from a Fed rate cut. Credit card rates are legally tied to the so-called prime rate that banks charge their best customers, which is based on the U.S. overnight interest rate set by the Fed.
But, but, but: The Fed funds rate has diverged a bit this year from the prime rate and the credit card rate since the Fed paused its hiking cycle.
While the Fed rate hasn't moved since December 2018, the prime rate rose 15 basis points in January to 5.5% and has remained there, and the commercial credit card interest rate has risen 28 basis points to an all-time high of 17.14%.
Between the lines: NerdWallet's data also finds almost half of Americans (47%) do not pay their credit card bill in full each month and 38% of U.S. credit card holders don't know the interest rate on their cards.
