The Prime rate right now is 3.25% and the banks are paying 0.50% to 1.05% on CD's and savings account, in other words the cost of money to the banks is very low. Yet, credit card rates - the most common ones not the low interest super prime basic cards - typically run 15% to 24% and include some form of "rewards". Charge off rates, meaning accounts that go into collection at 180 days late, are running 2.5% to 4.0% which is pretty low too (historically). Now if by chance you can't pay in full every single month, and based on the number of myFICO member that tell tales of getting into credit card problems I'd say most (75% plus) people carry a balance month to month, this is where that high APR really gets you in trouble.
The marketing I was talking about is where credit card issuers have trained the public into juggling 4-6-8 cards to get 1.5% here, 2% there, 3% on groceries, 5% on gas for 30 days if you spend $3000 etc etc etc. You are juggling a pocketful of cards running everything you spend on this card or that card to get some "cash back" with the banks getting their "vig" for everything you spend, and we play this game. Many of the cards that offer the "best rewards game" carry an annual fee on top of prime + too much interest rates. I'm willing to bet that most card holders don't use many of the marketed "benefits" of their mega-bank ultra elite rewards cards and those that do need to play the juggle the cards game as almost a full time hobby.
History (stats) shows that people spend more when they use credit cards vs cash, because a card does not feel like real money like cash does. When the banks were able to charge full boat fees on debit cards they were highly pushed by banks, no credit money outlay for the banks, it was your money in your checking account. Now that fees on debit cards are controlled (greatly reduced), you'd think using a debit card was like pasting $100 bills to your forehead and walking drunk in a bad part of town - NO, its the "vig" and banks are make less when you spend your direct money using a debit card. You might not care that the mega-store or the local merchant has to pay a swipe fee for that coke you bought and he can afford it when you bought that new laptop because "he has a profit margin built in", but the fact is merchants pay these fees and costs are passed on to you in the form of higher prices.
The ONLY winner in this game is the CCC, they get AF's, they get prime plus too much interest APR and they get swipe fees for every penny run through their cards. You and I get a new hobby of juggling 4-6-8 cards for the rewards flavor of month, while we force feed credit cards for every everyday purchase in our quest to get a new toaster with our rewards points. Prime rates are posted just so the CCC cover their butt if the cost of money goes up because its the 15% to 20% on top of Prime that is their real interest margin (not counting AF's and/or swipe fees).
Discover just reported a 36% increase in profits, AmEx, MC/V are showing similar results. Credit Card issuers are showing increased profits with low charge off rates. Every time there is additional "regulation" such as the Card Act or limiting of debit swipe fees you hear doom and gloom from the issuers, yet it doesn't happen as they market their products to sub-prime, prime and super prime customers. AmEx is in 3rd place with the number of cards issued and their EOY SEC report stated currently 98 million active cards issued with a push to increase that number. These "profits" come from the thin air of swipe fees, AF's and Prime PLUS margins. It's incredible to me the amount of money skimmed in vig by these issuers with the public happily playing their "wack a mole" rewards game.
The "rewards game? ? I'd rather spend my free time playing golf....
*** Remember the Tallyman because he sure remembers you ***
