Interest rates on retail credit cards have soared to about 29%, the highest level on record.
A Bankrate survey found the average retail credit card annual percentage rate has hit 28.93% this year, which is up from 26.72% in 2022 and 24.35% the year before. Those numbers are far above the average for all credit cards and can be seen as a warning for shoppers heading into the holiday shopping season.
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Retail credit cards differ from regular rewards cards like those issued by American Express or Bank of America and are issued by individual stores or retailers, such as Macy’s. While retail cards typically have higher APRs, they are easier to obtain for someone with a lower credit score. They also usually have low credit limits compared to the major credit card issuers. Many of the retail credit cards can only be used in the store they are tied to, although other open-loop retail cards allow purchases both inside and outside the brand.
The higher APRs are making shopping and paying off retail debt far more challenging, particularly considering that consumers are already being hurt by high inflation. The Federal Reserve has been raising its interest rate target since last year, and rates on everything from credit cards to mortgages have surged in response.
“We used to see 30% as the high end for retail credit card APRs. In fact, 29.99% was an artificial barrier that few dared to cross — for psychological reasons, mostly,” said Ted Rossman, senior industry analyst at Bankrate. “But the market has blown past that threshold given the Fed’s aggressive series of interest rate hikes over the past year-and-a-half.”
“Many retail credit cards now charge all of their balance-carrying customers rates in line with what we used to think of as figures reserved solely for a deep subprime audience,” he added.
While the average APR on a retail credit card is pushing toward 30%, the average for all credit cards is well below that level at 20.72%, although that is still high.
If a shopper were to make a $1,000 purchase using a retail credit card with the current average APR, it would take 50 months of minimum payments to finance the purchase and that consumer would end up paying $715 in interest — more than 70% of the price of their original purchase.
Even though rates on non-retail credit cards are well below retail credit cards, they are still notching historic highs. They are now the highest they have ever been in Bankrate’s database, which goes all the way back to September 1985. Higher interest rates on credit cards make taking on and paying back debt more challenging for consumers.
To put it in context, the average interest rate for credit cards in late February 2020, just ahead of the pandemic wreaking havoc on the economy, was 17.36%, according to Bankrate.
Members of Congress have moved to impose controls on interest rates on credit cards, although those efforts have largely fallen flat and are vociferously opposed by banks and many economists.
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While efforts to cap credit card interest rates have typically been proposed by lawmakers on the Left, there has been some attention to rate caps among a few political figures on the populist Right. Sen. Josh Hawley (R-MO) recently introduced a bill that would stop credit card APRs from rising above 18%.
Further complicating the situation with credit card-associated borrowing and debt, total U.S. consumer credit card debt reached an all-time record of $1.03 trillion in the second quarter of this year, according to the Federal Reserve Bank of New York.
