This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Consumer to Be Casualty of Bank Downgrades

NEW YORK ( LowCards ) -- Last Thursday, Moody's Investors Service cut the credit rating of fifteen banks due to their significant exposure to the volatility and risk in the global financial markets.

Earlier this month, Standard & Poor's also warned that the United States could face another downgrade in credit rating if the government does not get a serious plan about paying down the national debt.

While the Federal Reserve has vowed to keep interest rates at record lows through 2014 in an effort to stimulate the economy, these credit downgrades for banks and the government can result in higher interest rates for consumers.

The three national credit rating agencies -- Fitch Ratings, Standard and Poor's, and Moody's -- measure the creditworthiness of companies and governments. The higher the rating, the less risky the investment and the more likely the bank or government will repay the loan. Credit downgrades are similar to a drop in credit scores and indicate a higher risk of default on loans. This can lead to higher interest rates for banks and the government.

In August 2011, S&P downgraded the rating of the United States long-term debt from from AAA -- the highest rating and the safest investment -- to AA+.

In their action last week, Moody's downgraded a number of big banks including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley because their core business has structural weaknesses. However, this downgrade may accelerate their problems.

Banks depend on securing low interest rates to make profits on the loans they make. Higher interest rates will squeeze profits that have already been sliced by regulations and changes in the industry.

Increasing interest rates for government and bank loans could lead to increases in all interest rates, including credit cards, mortgages, and student loans. Credit cards are the easiest form of credit, but the average interest rate is already very high. According to the LowCards.com Weekly Credit Card Rate Report , the average advertised credit card APR is currently 14.30%, up from 11.64% in May 2009, the week the CARD Act passed.

The interest rate for credit cards continues to climb even though the prime rate has remained at 3.25% since December 2008. Interest charges are a primary source of income for lenders, and rates will continue to climb as the bank's own interest costs increase. These higher rates are usually always passed on to consumers. The best way for cardholders to avoid these interest rate hikes is to completely pay off the balance on your credit cards each month.

--By Bill Hardekopf

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,156.85 +24.88 0.15%
S&P 500 2,001.57 +2.59 0.13%
NASDAQ 4,562.1890 +9.43 0.21%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs