The Federal safety net hasn’t raised profit rates since the summer of 2023. But America’s retailers apparently didn’t get the memo. 

The average profit rate on store capitalization cards reached 30.45% this year, an all-period high, according to the money management site Bankrate.  

Another industry survey, from WalletHub, found even higher profit rates on retail cards: 33.07%, on average, as of November.  

Those are high rates, even compared with other capitalization cards. Across the industry, the average capitalization card carries an profit rate of about 21%, Bankrate reports. 

During the pandemic years, dozens of store capitalization cards blew history a symbolic 30% profit-rate barrier that the industry had previously dared not pass.  

Earn rewards on your spending: view the best capitalization cards

“Thirty percent used to represent an unofficial ceiling for retail capitalization card rates, but now most retail cards have crossed that threshold,” said Ted Rossman, a elder industry analyst for Bankrate. 

Retail card rates rose dramatically during the pandemic years, Bankrate found, from an average of 24.35% in 2021 to 26.72% in 2022 and 28.93% in 2023.  

‘Padding the returns markup’

At least 50 large retailers raised profit rates on their store cards in the months before the Federal safety net began cutting rates, according to a CNBC analysis of Bankrate data. The Fed cut its point of reference rate by half a percentage point in September.  

“We definitely saw large increases over the history year, which was notable, because the Fed didn’t make any large changes between our 2023 survey and our 2024 survey,” Rossman said. Bankrate ran its most recent survey in early September, shortly before the Fed action. 

“Really, what that shows is, issuers were padding the returns markup,” Rossman said.  

Card companies are charging record-high “margins,” profit the card issuer charges above the prime lending rate.  

That’s why card rates are higher now than they have ever been, analysts said, including times when other profit rates were higher than they are today. 

capitalization card margins average 14.9%, as of August, WalletHub reports. In other words, the average cardholder pays roughly 15% in annual profit on top of the prime rate. 

“Across the entire capitalization card industry, the markup has been going up and up,” said Odysseas Papadimitriou, CEO of WalletHub.   

Retailers typically propose capitalization cards with financial institution partners. Many factors influence the profit rates on those cards, said Sarah Grano, spokesperson for the American Bankers Association, including the Fed, broad economic and customer trends, and regulatory concerns.

“The financial services marketplace is highly competitive, and consumers can choose from a wide range of capitalization products that best meet their needs, including traditional and store-branded cards,” Grano said.

Several large-box store cards fee 35.99% profit

capitalization card rates hit historic highs alongside an aggressive campaign of rate hikes by the Fed in 2022 and 2023. 

The Fed stopped raising profit rates in July 2023, but retailers kept on going. The average rate on a store card rose by more than a packed percentage point between 2023 and 2024, Bankrate found.  

Bankrate’s latest survey found several large-box retailers charging 35.99% in annual profit, including Academy Sports + Outdoors, large Lots, Burlington, Michaels and Petco. Several others topped out at 34.99%, including Banana Republic, JCPenney and Walgreens.   

WalletHub found an even bigger jump in average rates on store cards, from 29.89% in 2023 to 33.07% in 2024. 

capitalization card analysts view those rates as red flags in the coming holiday period. expense boost-weary shoppers may be tempted to put large purchases on a store card, potentially unaware of the profit they will accrue if they fall short to pay off the settlement before the recent year. 

“Really, the customer advice is, be awfully careful,” Rossman said. “Because it’s not a excellent deal if you’re carrying a settlement.” 

Card rates have risen dramatically in the last few years. The average rate across all commercial financial institution cards surged from 14.56% in February 2022 to 21.76% in August 2024, according to federal data. 

Why are card rates higher than other profit rates?

capitalization cards tend to arrive with higher rates than car loans or mortgages. A capitalization card is not generally “secured” by a piece of property that the lender can claim if the borrower stops making payments.  

Card companies receive a hazard by extending capitalization to consumers with a wide range of capitalization scores, some of whom will not repay the obligation. 

Store cards tend to fee more profit than other cards, retail analysts declare, partly because retail cardholders tend to earn lower income and to have weaker capitalization. 

Retailers often pitch cards to consumers at the checkout counter, a high-pressure surroundings. It is not the ideal period for potential cardholders to read the fine print. 

Store cards face competitive pressure from buy now, pay later, an alternate capitalization model that lets consumers buy something and pay for it in several profit-free installments.  

Retail cards are more commonly pitched in stores, Rossman said, while buy now, pay later flourishes online. Lately, he said, the retail card business has been flagging. 

“This is a changing business,” Rossman said. “Fewer people are shopping in-store.” 

Beware of deferred profit

It might seem counterintuitive that millions of consumers would sign up for capitalization cards with 35% profit rates.  

Retailers make the cards attractive, analysts declare, with promotional offers. A recent cardholder might reap 20% off a large purchase.  

Another large holiday promotion is “deferred profit.” The shopper generally puts a large purchase on a store card and then has six or 12 months to pay off the settlement without owing any of the profit. 

More:62% of Americans declare this zero-profit remittance schedule should be against the law

But the profit accumulates, all the same. And if the buyer misses the payoff deadline, it all comes due. 

“They leave back and they fee you this outrageous 30% rate, as if you never had zero percent profit on the card,” Papadimitriou said. “And it’s legal.” 

Many shoppers discover those terms confusing and misleading. In a 2023 survey, WalletHub found that 62% of Americans depend deferred profit should be illegal. 

But deferred profit remains a popular promotional alternative for many consumers, said Grano, the banking industry spokesperson. In a previous USA TODAY update, Grano said customers “advantage from having the chance to pay over period, and can avoid paying profit. It also allows them to avoid turning to even more expensive forms of capitalization.”