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While the Feds did not raise short-term interest rates this week, there are indications they may do so before the end of this year. Currently, the spread between the average credit card interest rate and the prime rate remains at its highest level in nearly 20 years. Even if interest rates are adjusted for charge-offs or losses, the spread is the second highest in ten years. This explains why many issuers continue to report record profits for their card businesses. For example, Citibank's profits are up 25% and MBNA's profits are up 30%. For consumers, switching to a fixed rate card may be a good move, as it will slow down the process of passing through any potential rate increases this year. Also be on the lookout for new offers of variable rates. These may look good now, when the prime is at 4.00%, but they may ratchet up sharply once the Feds tighten up.
Charge-Offs 1993: 4.43% 1998: 5.49% 2000: 4.58% 2001: 6.55% 2002: 7.51% 2003: 7.28% APRs 1993: 15.91% 1998: 17.30% 2000: 17.90% 2001: 15.82% 2002: 16.04% 2003: 16.44% Prime 1993: 6.00% 1998: 7.75% 2000: 9.50% 2001: 4.75% 2002: 4.25% 2003: 4.00% Source: CardWeb.com's CardData Service
