Imagine how wonderful credit cards would be if they didn't charge interest. You'd get the safest way to pay, plus perks, extra consumer protections, and miles, points or cash back all for free -- unless you opted to pay an annual fee for extra services. For close to half of Americans, that's already a reality, because they never carry forward balances to the following month. The rest, probably a small majority, do sometimes, often or always have credit card debt. And they pay a high price.
Credit card rates today
According to the IndexCreditCards.com rates monitor, the average consumer non-rewards card was charging 15.48 percent APR in mid-August, while the same figure for a consumer rewards card was 17.83 percent. That "APR" stands for "annual percentage rate," and represents the actual yearly cost of borrowing over the entire term of a loan. So short-term loans can be less expensive than they sound. For example, if you borrow $100 for three months, the actual interest you'd pay at 17.83 percent APR would be just $4.38, according to one of this site's credit card calculators. Still, that's not cheap compared to some other forms of borrowing. And those APRs are averages: IndexCreditCards.com writer Richard Barrington is an expert on rates, and reckoned that, in August 2014, someone with a great credit score could find an APR 4.1 percentage points lower than someone with an average one.
How rates are set
Just about every card's rate is based on a prime rate, often the one published daily in The Wall Street Journal. This reflects the rate banks charge their most secure and creditworthy customers -- usually huge, global corporations -- for borrowing, and has been stuck at 3.25 percent for ages now. If you have variable-rate plastic (and vanishingly few products nowadays have fixed rates), then your issuer should have identified in your card agreement both the prime rate it uses and the "spread" you have to pay, which is the amount in percentage points on top of that prime rate you're going be charged.