The average interest rate charged by the fifteen largest issuers of VISA and MasterCard and the two issuers of Discover and Optima is now 19.28%. Last September the rate was 19.47%. If the prime rate falls to 8.0% before the end of this month, the same average should drop to 19.10%.
The small drop in credit card rates over the pastyear translates into a mere $6 annual savings for revolving cardholders. If credit card rates tracked the decline in the prime rate (10% to 8%) during the pastyear, the average revolving cardholder would be saving more than $32 per year. But credit card rates have never kept pace with the movements of money indices and have always remained high in relation to other consumer loan rates. So if you're waiting for the industry to produce substantial rate relief you're in La La Land.
You have in your hands the means to cut credit card costs by at least one third or about $100 annually. This newsletter is loaded with hundreds of issuers offering cards well below the rates charged by most ofthe nation's largest issuers. All you have to do is pick up the telephone and call the issuer, usually toll-free, and request an application.
More cardholders are switching to lower priced cards than ever before. Issuers charging rates above 19% have been dogged by an attrition problem while issuers charging bargain rates have enjoyed solid growth.
High rate issuers are facing attrition rates this year of more than 18%. According to a mid-year survey published in RAM Research's BankCard Barometer (aproprietary statistical industry report), the number of active accounts dropped by an average of 5% this year.This indicates many issuers, particularly those charging the highest rates, cannot sign-up enough new cardholders or reactivate dormant accounts in sufficient numbers to cover the loss of cardholders.
Confronting the problem, MasterCard launched a program this summer to assist issuers to retain cardholders. Several major issuers have established special in-house retention units to help stop the hemorrhage. Before the U.S. marketplace was flooded with plastic, cardholder attrition was not a majorconcern. Now, however, a saturated market, fresh, stiffcompetition and increased consumer debt awareness hasproduced a new ball game for card issuers.
Bargain card issuers, mean while, continue to sign-up plenty of new cardholders, not only covering attrition but also producing strong growth. For example, USAA Federal Savings, has grown by 9.9% since the first of the year. As of June 30th, USAA FSB, based in San Antonio and issuing from Tulsa, had 1,604,000 accounts compared to 1,460,000 on December 31st. In the past eighteen months USAA has grown by an astounding 64.2%. USAA's secret weapon: a low, variable rate (now 13.75%), no-annual-fee, full 25 day grace period VISA and MasterCard. (800-922-9092)
Even tiny issuers of bargain cards, like Citizen's Bank & Trust of Baytown, Texas, are enjoying growth rates of 9.5%. Citizens grew from 4,915 to 5,383 accounts since January. Citizens offers local residents aVISA or MasterCard with no-annual-fee, a 13.92% A.P.R. and 25 day grace period.
Some consumers feel they are stuck with paying 19.8% and not creditworthy to qualify for a card with amuch lower rate. Indeed if you start by applying for the low-rate (10.5%) cards offered by several Arkansas banks you will be very discouraged. The Arkansas banks reject most applications (80% +) and usually grant disappointingly low credit lines (under $1,000) to those who do qualify. However other established, national bargain rate issuers, like USAA Federal Savings, (800-922-9092), Wachovia Bank (800-842-3262) and People's Bank (800-423-3273), approve applicants and grant credit limits in line with the rest of the industry.
If the annual fee is your only concern there is noreason to pay one today. Many issuers will waive the annual fee on existing accounts, especially if you carry a sizable balance or charge heavily. As a matter of fact, waiving annual fees is one strategy of the new cardholder retention programs. We believe within the next few years credit card annual fees will disappear and become a penalty fee much like an over-limit fee or late payment fee. If you cannot get annual fee relief on your current account turn to page six and start shopping.
Recently a number of reports have surfaced claiming credit card rates are rising despite declining general interest rates and competition. The reports arebased on "averages" published by firms engaged in surveying a variety of banking products including auto loans and CDs. These reports contradict our findings.
The pricing trends emerging from RAM Research's extensive surveys show average rates have declined from last September and from the first of this year. Our surveys also reveal a greater abundance of bargain cards this year compared to last year. For example, the credit card table we prepare for the Wall Street Journal listing the twenty five lowest rate, nationally available standard cards, now ranges from 8.0% to 16.30% compared to September 1990's tableranging from 8.0% to 16.86%. The September 1990 table lists nine banks offering cards under 15.0% while the September 1991 lists seventeen issuers charging less than 15.0%. Why then the discrepancies?
One firm uses a survey base of 100 banks distributed among ten major cities. This method seems fair enough if you are surveying personal loan, auto loan, CDs or money market accounts. Unlike local bank products, credit cards are issued across state lines or the entire country. As a result this type of limited survey skews averages by including credit card rates of banks not directly engaged in issuing cards but rather acting asagents of other issuers. The averages are also skewed by the inclusion of tiny issuers and assigning them equal weight in the calculations for the averages.
To arrive at truly representative "averages" the survey base must mirror the industry and cover a very substantial amount of marketshare. A small survey base can also be used if rates are weighted to marketshare.
The following chart provides a good indicator of credit card rate trends since last September. The table lists the fifteen largest issuers of VISA and MasterCard and the issuers of Optima and Discover.
ISSUER NAME 9/90 9/91 Citibank 19.80% 19.80% Chase Manhattan 19.80% 19.80% MBNA America 19.80% 19.80% Bank of America 19.80% 19.80% FCC National 19.80% 19.80% Bank of New York 16.98% 17.40% Manufact. Hanovej 19.80% 19.80% Household Bank 21.00% 21.00% Wells Fargo 19.80% 19.80% Associates 19.80% 19.80% First Deposit 21.90% 18.99% NationsBank 18.00% 17.90% Bank One 20.80% 20.80% Chemical Bank 19.50% 18.40% Corestates 18.80% 18.80% Optima 15.75% 16.25% Discover 19.80% 19.80% Averages: 19.47% 19.28%The issuers listed above have a combined marketshare of 64.9% and a cardshare of 53.51%.
