Rising credit card interest rates in 2017 mean that financial institutions will make more money this year. At this time, consumer credit card debt is just below $992.4 billion in the United States. The Federal Reserve already increased interest rates by 0.25 percent, and three more rate hikes are expected this year.
This means that credit card debt is becoming more expensive for consumers. Unfortunately, credit card contracts are made to give banks leeway to increase their interest rates with any kind of federal rate hike. Meanwhile, banks aren’t passing the same interest rate increases to depositors. So, your credit card debt will likely take an interest hit, while your savings account interest rate won’t benefit at all.
The trend of rising interest on credit card debt without a corresponding rise on interest for savings accounts is reflected in numbers from 2016. During the last half of 2016, new credit card rate averages increased from 17.85 percent up to 18.16 percent. Meanwhile, the annual yield for checking and savings accounts only increased from 0.32 percent up to 0.33 percent.
For banks, the tiniest of interest rate changes translates into massive gains. For example, with December 2016’s rate hike of 0.25 percent, banks are expected to earn $2.48 billion extra in annual interest gains. If you’re like most Americans and hold the average debt balance of $5,550, a rate increase of 13.61 percent up to 14.61 percent translate into a cost of $63 extra per year.
Washington residents with a large amount of credit card debt need to realize that their situations are looking bleaker in 2017, and their monthly debt payment obligations could rise. They should therefore consider taking every effort to resolve their debt now, before their situations get any worse. In some cases, bankruptcy proceedings could be the best solution available to consumers who are swimming in credit card debt.
Source: New York Post, “Got credit card debt? Get ready to get screwed,” Catherine Curan, Jan. 22, 2017