/How rewards programs for the rich could push credit-card costs higher — even though interest rates are falling
How rewards programs for the rich could push credit-card costs higher — even though interest rates are falling

How rewards programs for the rich could push credit-card costs higher — even though interest rates are falling

credit cardJoe Raedle/Getty Images


While interest rates plateaued and then moved steadily lower this year, credit card costs have headed in the opposite direction.  

Banks have increased credit card interest rates to mark up for profit losses from increasingly generous rewards programs, according to the Wall Street Journal. Perks like free travel have helped push the average annual percentage rate on credit cards up to nearly 17% in August, its highest level in at least 25 years

The Federal Reserve lowered its benchmark interest rate for the first time since the financial crisis a decade ago in July. The central bank continued to move them lower in September as strains on the economy fanned slowdown risks. 

In theory, such adjustments would pull borrowing costs lower. But lenders have increased credit card rates in an attempt to make up for the costs of rewards packages that had ended up less profitable than anticipated, according to the Journal. The amount lenders added onto credit cards rose to 11.72 percentage points last month, a record peak. 

Higher borrowing costs could disproportionately affect middle and lower income Americans who make the minimum payment each month. According to the New York Federal Reserve, credit card delinquencies have been on a steady rise over the past two years.

Read more: Nobel laureate Robert Shiller forewarned investors about the dot-com and housing bubbles. Now he tells us which irrational market behaviors have him most worried.

fredgraphSt Louis Fed