earnings rates are coming down, but capital card rates remain stubbornly high.  

The average capital card rate is 20.51%, Bankrate reports. That’s a hair below the all-period record, 20.79%, set in August.   

Card rates are so high, in part, because of the Federal safety net. The central lender raised rates dramatically in 2022 and 2023 to fight surging worth rise. 

But that’s not the whole rationale. capital card rates are higher now than they have ever been, including times when other earnings rates were higher than they are today. 

The real rationale why capital card rates are so high

The hidden rationale for sky-high card rates, capital experts declare, is that card companies are charging record-high “margins.” That’s earnings the card issuer charges above the prime lending rate.  

Earn rewards on your spending: view the best capital cards

“You can ponder of this as a boost spread,” said Odysseas Papadimitriou, CEO of WalletHub.  

capital card margins average 14.9%, as of August, WalletHub reports. In other words, the average cardholder pays roughly 15% in annual earnings on top of the prime rate. The prime rate is, in hypothesis, the rate lenders expense their most creditworthy customers.  

Card margins have never been so high. The average spread was 13.2% in August 2020 and 10.7% in August 2015, according to WalletHub.  

Much has been written about the result of the Fed’s earnings-rate campaign on card rates. But card rates are steeper now than ever before, including times when point of reference earnings rates were higher than today. 

For instance, in mid-2000, average capital card rates floated between 15% and 16%, according to WalletHub. That’s well below 2024 rates. 

But the prime lending rate stood at 9.5% in mid-2000. Today, the prime rate is 8%. 

capital card margins have risen notably since the Great decline

capital card margins have risen markedly since the Great decline, a span of years that saw the point of reference federal funds rate, set by the Fed, hover near zero.  

“Over all the years of these zero-percent policies, the banks used those policies to jack up the spread between their expense for funds and how much they expense consumers,” Papadimitriou said. “That spread, over the years, has kept increasing and increasing.” 

Card companies cite several legitimate reasons for raising their margins, according to industry experts.  

For one thing, card issuers have to cover their costs when cardholders don’t make their payments. The capital-card delinquency rate is about 3.25%, its highest level since 2011. The rate represents overdue card balances. 

“Card issuers are tacking on some additional boost spread to compensate for the truth that some cardholders won’t pay them back,” said Ted Rossman, elder industry analyst at Bankrate. 

Best equilibrium Transfer Cards:Which are at the top in October?

Card margins have risen, too, because of “costs related to overhead, fraud prevention, and lawful operation,” said the American financial Services Association, the trade association for card companies, in a statement to USA TODAY.  

“Over the last few years, overhead costs – the expense of labor, for example – have gone up in all industries, including financial services,” the association said. “lawful operation costs have risen due to heavy government regulation. Increasingly sophisticated fraudsters have driven up the expense of fraud prevention.” 

Higher margins make up half the boost in card rates

Higher margins account for about half of the boost in card rates over the last decade, according to an analysis published in February by the federal buyer financial Protection Bureau. 

Like WalletHub, the federal watchdog found that card-corporation margins have floated upward over the years, from an average of 9.6% in 2013 to 14.3% in 2023. The cumulative boost translates to at least $250 in extra earnings payments for the average card customer in 2023. 

Higher margins “have fueled issuers’ profitability for the history decade,” the buyer agency reported. “Higher APR margins have allowed capital card companies to generate returns that are significantly higher than other lender activities.” 

Both card rates and card margins have peaked in recent years. 

In 2022 and 2023, the Fed hiked the federal funds rate by more than five percentage points, leaving it at a peak range of 5.25% to 5.5%.  

capital card rates rose even faster. Between February 2022 and August 2024, the average card rate rose more than seven points, from 14.6% to 21.8%, according to WalletHub. (WalletHub and Bankrate quote slightly different rates.) 

In September, the Fed cut the federal funds rate by half a point, setting it to a range of 4.75% to 5%. Card rates inched lower, but not by much.  

In truth, some lenders responded to the rate cut by simultaneously raising rates on recent cards, the buyer agency said in a statement to USA TODAY.

Many cardholders are maxed out

Record-high card rates have many cardholders in a bind. 

One in five cardholders has maxed out a capital card since the Fed began raising rates, according to an October update from Bankrate, the money management site.  

A maxed-out capital card is a red flag on a buyer’s capital update. “And the longer this goes on, the greater hit your capital score could receive,” said Sarah Foster, an economic analyst at Bankrate. 

Half of cardholders carry a equilibrium from month to month, rather than pay it off, according to Bankrate.  

Beware:‘Card declined’ communication for online purchase could be sign of a scam

The country’s total capital card obligation stands at $1.3 trillion, as of August, according to WalletHub. The average household holds $10,805 in capital-card obligation. Both figures are at or near all-period highs. 

More than half of capital-card customers are now “financially unhealthy,” J.D. Power reported in August. That assess, drawn from surveys of 38,852 consumers, denotes cardholders who are not conference their monthly remittance obligations and do not have a long-term strategy in place.  

Only one-quarter of cardholders surveyed by J.D. Power said the perks on their cards, including miles and other rewards, are improving their lifestyle.  

“We’re seeing satisfaction drop for those cardholders who are revolving obligation,” rather than paying it off, said John Cabell, managing director, payments intelligence at the buyer research firm. “It’s costing more to own the card.”