Credit Card Interest Rate “Floor”

While interest rates may be falling across the board, it seems many consumers aren’t noticing the interest break on their credit cards.  In fact, many are paying the same interest rate or higher than they were before.

How is that possible when most credit card interest rates are tied to the federal funds rate?  When the federal funds rate decreases, the credit card interest rates should fall along side it. 

This would happen if the bank that issued your credit card didn’t have a “floor”.  An invisible line that the credit card interest rate cannot drop below.  For most cards tied to the federal funds rate and that have a floor - that floor has already been reached which means the interest rate can’t drop any further.

Some of the countries biggest credit card issuers report having an interest rate “floor”, including:  Wells Fargo, HSBC, Discover, SunTrust and National City (on at least some of the cards they issue). 

Wachovia has a penalty interest rate for consumers who pay their credit card payment late twice in a row.  They have a floor for their penalty interest rates and cash advance rates, but the interest rate on purchases made on a Wachovia credit card do not have a floor. 

Credit card issuers reporting no interest rate “floor” include Bank of America, American Express and U.S. Bank.

Two issuers with an unknown policy for interest rate floors include Chase and Citigroup, as they don’t disclose whether they have this policy or not.