:max_bytes(150000):strip_icc()/alternativestoacashadvance-525099cf3fc84646834f06d64488cbb4.jpg "Fed policy has driven up credit card interest rates – many cardholders are unaware of this")
Key findings
- The US Federal Reserve’s key interest rate has driven up credit card borrowing costs over the past two years.
- However, half of all Americans are unaware of the connection between monetary policy and their credit cards.
- The high cost of goods and services is forcing households to take on more debt, and many are finding it more difficult to repay this debt due to high borrowing rates.
To counteract inflation, more and more private households are resorting to loans. However, many are not aware that the US Federal Reserve’s fight against price increases is further increasing their indebtedness.
Inflation has remained stubbornly high this year, and households are increasingly turning to credit cards to cover the gaps. At the same time, the Federal Reserve has kept its influential benchmark interest rate at its highest level in more than two decades in an effort to reduce spending and thus contain inflation. This has increased the cost of borrowing of all kinds, including credit cards.
However, many Americans are unaware that credit card interest rates are tied to the Fed’s monetary policy, a new survey shows.
Credit card interest rates are rising
The average credit card interest rate was 21.51% in May, according to the most recent data available from the Federal Reserve. While this is a slight decrease from April, it is still well above the 14.50% level at which credit card interest rates were before the Fed began its fight against inflation.
Nearly half of respondents to a recent LendingClub survey were unaware of the connection between the prime rate and their interest rate, and 47% do not know their credit card’s current APR.
More and more consumers are paying by credit card
Due to the high prices of goods and services, many consumers are struggling to make ends meet. According to LendingClub, more than a third of Americans would not be able to manage their finances without a credit card.
Partly due to this dependence, total credit card balances exceeded $1 trillion, according to Transunion.
“Unfortunately, many consumers are unaware of these rising costs and credit card companies are happy to let it stay that way,” said Mark Elliot, chief customer officer at LendingClub, in a press release.
As consumers take on more debt and the cost of credit rises, many are falling behind on their payments. According to the Federal Reserve Bank of New York, delinquencies on U.S. credit cards recently hit a 12-year high.
