topic Re: Credit card APRs compared to Prime Rate in Credit Cards

Credit card APRs compared to Prime Rate

Gollum — Sat, 24 Mar 2012 12:53:19 GMT

Almost all credit card interest rates are tied to the Prime Rate, which has been 3.25% since December 16, 2008:

http://research.stlouisfed.org/fred2/data/PRIME.txt

The average credit card interest rate is currently 15% (dunno which domains are allowed for this forum, so google it for yourself). That's Prime Rate plus 11.75%.

In the late 1990s and early 2000s, the Prime Rate reached a maximum of 9.25%. My credit card interest rate during that period was 5.9%. That's Prime Rate minus 3.35% at worst.

The current discrepancy between the Prime Rate (3.25%) and the average credit card interest rate is remarkable. I doubt credit cards have ever had a higher average iinterest rate compared to the Prime Rate than the current situation.

Since many banks are effectively betting against consumers (by offering high APR reward cards), I suggest consumers err on the side of caution:

Go for a lower APR instead of rewards.

Let's look at a hypothetical example:

John Smith has an annual income of $36,000.

He is able to route all of his spending through his high APR rewards card.

He "earns" an average of 1.5% of his income from his card rewards, so he "earns" $45 per month in rewards:

$36,000 divided by 12 months equals $3000 per month

$3000 multiplied by 0.015 equals $45.

So John Smith "earns" $45 per month as long as he pays his credit card balance in full every month.

Now imagine this unfortunate change of circumstances:

John Smith is laid off from his job, so he has to carry a balance on his high APR (22.9%) rewards card.

Carrying a balance of $2000 costs at least $38.17 in interest each month:

$2000 multiplied by 0.229 equals $458

$458 divided by 12 months equals $38.17.

I think high APR rewards cards are betting against the average consumer. We all plan to pay in full every month, but what happens if we are not able to do so?

Re: Credit card APRs compared to Prime Rate

Repo-ed — Sat, 24 Mar 2012 12:57:59 GMT

@Gollum wrote:
Almost all credit card interest rates are tied to the Prime Rate, which has been 3.25% since December 16, 2008:
http://research.stlouisfed.org/fred2/data/PRIME.txt

The average credit card interest rate is currently 15% (dunno which domains are allowed for this forum, so google it for yourself). That's Prime Rate plus 11.75%.

In the late 1990s and early 2000s, the Prime Rate reached a maximum of 9.25%. My credit card interest rate during that period was 5.9%. That's Prime Rate minus 3.35% at worst.

The current discrepancy between the Prime Rate (3.25%) and the average credit card interest rate is remarkable. I doubt credit cards have ever had a higher average iinterest rate compared to the Prime Rate than the current situation.

Since many banks are effectively betting against consumers (by offering high APR reward cards), I suggest consumers err on the side of caution:
Go for a lower APR instead of rewards.

Let's look at a hypothetical example:

John Smith has an annual income of $36,000.
He is able to route all of his spending through his high APR rewards card.
He "earns" an average of 1.5% of his income from his card rewards, so he "earns" $45 per month in rewards:
$36,000 divided by 12 months equals $3000 per month
$3000 multiplied by 0.015 equals $45.
So John Smith "earns" $45 per month as long as he pays his credit card balance in full every month.

Now imagine this unfortunate change of circumstances:

John Smith is laid off from his job, so he has to carry a balance on his high APR (22.9%) rewards card.
Carrying a balance of $2000 costs at least $38.17 in interest each month:
$2000 multiplied by 0.229 equals $458
$458 divided by 12 months equals $38.17.

I think high APR rewards cards are betting against the average consumer. We all plan to pay in full every month, but what happens if we are not able to do so?

They ALWAYS bet against the consumer. Remember the toxic housing debt that made some wallstreet and politicians billions about 3 years ago or so?

Re: Credit card APRs compared to Prime Rate

afbar1114 — Sat, 24 Mar 2012 13:00:48 GMT

this is what i am starting to figure out now.... is it better to have a lower APR card then rewards? or use a rewards card insted of debit card like an AMEX charge card... esstientails like food and maybe gas should be PIF each month i beleve...so maybe thats where a rewards would come in..but other purchases should be put on a lower APR card..i just got the best APR i ever got at 14.24%

Re: Credit card APRs compared to Prime Rate

Repo-ed — Sat, 24 Mar 2012 13:03:06 GMT

@afbar1114 wrote:
this is what i am starting to figure out now.... is it better to have a lower APR card then rewards? or use a rewards card insted of debit card like an AMEX charge card... esstientails like food and maybe gas should be PIF each month i beleve...so maybe thats where a rewards would come in..but other purchases should be put on a lower APR card..i just got the best APR i ever got at 14.24%

Anything that has diminishing value immediately after purchasing it should be PIF each month.

Re: Credit card APRs compared to Prime Rate

Gollum — Sat, 24 Mar 2012 13:36:49 GMT

@afbar1114 wrote:
this is what i am starting to figure out now.... is it better to have a lower APR card then rewards? or use a rewards card insted of debit card like an AMEX charge card... esstientails like food and maybe gas should be PIF each month i beleve...so maybe thats where a rewards would come in..but other purchases should be put on a lower APR card..i just got the best APR i ever got at 14.24%

I think it is best to have no debt.

Re: Credit card APRs compared to Prime Rate

navigatethis12 — Sat, 24 Mar 2012 13:42:23 GMT

Gollum wrote::

John Smith has an annual income of $36,000.
$36,000 divided by 12 months equals $3000 per month
$3000 multiplied by 0.015 equals $45.

John Smith is laid off from his job, so he has to carry a balance on his high APR (22.9%) rewards card.
Carrying a balance of $2000 costs at least $38.17 in interest each month:

I think high APR rewards cards are betting against the average consumer. We all plan to pay in full every month, but what happens if we are not able to do so?

If he spends all of the money he earns every month then he needs to take a look at his spending habits. A person who makes 36 a year and loses their job should have no problem paying down a $2000 balance. I think that is where a lot of people go wrong, not putting money away and just spending it all. Not all rewards cards are that high. The Chase Freedom can be as low as 9.99 percent. That is without a sign up bonus though. The PNC card I have and the Fidelity two percent card are both 13.99.

Anyway, personally I would rather have rewards. If I replaced all the cards I have with cards that have a 5 percent rate, and never needed that rate, then I would be missing out on a lot of cashback. I suppose if one really wants a low rate card they could try and find one that can give a high limit and keep that for an emergency. However, I think one should always have some money put away. That way, if you lose your job you have no worries. If an unexpected bill comes up you would also have no worries.

I am disciplined enough that I never spend more than I have in my checking accounts. I do not spend that much anyway so that really is not hard for me.

@afbar1114 wrote:
this is what i am starting to figure out now.... is it better to have a lower APR card then rewards? or use a rewards card insted of debit card like an AMEX charge card... esstientails like food and maybe gas should be PIF each month i beleve...so maybe thats where a rewards would come in..but other purchases should be put on a lower APR card..i just got the best APR i ever got at 14.24%

If you do do that you are still negating any rewards you gain. If you earn $15 in rewards one month and put $1000 on the 14.24 card and pay it off in 3 months, you will pay $35.00. Even one month is $12, which almost takes away the rewards from the one month.

Re: Credit card APRs compared to Prime Rate

jefftca925 — Sat, 24 Mar 2012 14:25:58 GMT

@Repo-ed wrote:
@afbar1114 wrote:
this is what i am starting to figure out now.... is it better to have a lower APR card then rewards? or use a rewards card insted of debit card like an AMEX charge card... esstientails like food and maybe gas should be PIF each month i beleve...so maybe thats where a rewards would come in..but other purchases should be put on a lower APR card..i just got the best APR i ever got at 14.24%
Anything that has diminishing value immediately after purchasing it should be PIF each month.

I am soooo in this camp!! My belief (and habit) is to have the $$ in the bank to pay off what I charge in a week or so The banks will always be in the business of making a profit and if they can get a person trapped into their "Debt Spiral Producer" it's a total "win" for them. I say turn the tables on 'em and take THEIR money. I haven't paid interest on a CC in 4 years and I'm not about to start. But I do like using a CC because I feel safer with it opposed to a debit card. You read these horror stories about a person's bank account being drained 'cause they're account got hacked by a terminal reader at the local grocer. My debit card(s) rarely see the light of day.

Re: Credit card APRs compared to Prime Rate

boomhower — Sat, 24 Mar 2012 15:11:29 GMT

Why not have both? Get a Freedom, BCP, CSP, etc. for rewards while also getting some low interest non-rewards credit union cards for times you may need to carry a balance.

Re: Credit card APRs compared to Prime Rate

Anonymous — Sat, 24 Mar 2012 16:17:15 GMT

@Repo-ed wrote:
@Gollum wrote:
Almost all credit card interest rates are tied to the Prime Rate, which has been 3.25% since December 16, 2008:
http://research.stlouisfed.org/fred2/data/PRIME.txt

The average credit card interest rate is currently 15% (dunno which domains are allowed for this forum, so google it for yourself). That's Prime Rate plus 11.75%.

In the late 1990s and early 2000s, the Prime Rate reached a maximum of 9.25%. My credit card interest rate during that period was 5.9%. That's Prime Rate minus 3.35% at worst.

The current discrepancy between the Prime Rate (3.25%) and the average credit card interest rate is remarkable. I doubt credit cards have ever had a higher average iinterest rate compared to the Prime Rate than the current situation.

Since many banks are effectively betting against consumers (by offering high APR reward cards), I suggest consumers err on the side of caution:
Go for a lower APR instead of rewards.

Let's look at a hypothetical example:

John Smith has an annual income of $36,000.
He is able to route all of his spending through his high APR rewards card.
He "earns" an average of 1.5% of his income from his card rewards, so he "earns" $45 per month in rewards:
$36,000 divided by 12 months equals $3000 per month
$3000 multiplied by 0.015 equals $45.
So John Smith "earns" $45 per month as long as he pays his credit card balance in full every month.

Now imagine this unfortunate change of circumstances:

John Smith is laid off from his job, so he has to carry a balance on his high APR (22.9%) rewards card.
Carrying a balance of $2000 costs at least $38.17 in interest each month:
$2000 multiplied by 0.229 equals $458
$458 divided by 12 months equals $38.17.

I think high APR rewards cards are betting against the average consumer. We all plan to pay in full every month, but what happens if we are not able to do so?
They ALWAYS bet against the consumer. Remember the toxic housing debt that made some wallstreet and politicians billions about 3 years ago or so?

These are actually two opposite events. High interest rates tighten credit which is not what happened in 2008. What happened in the housing bubble was really a credit bubble. We had very loose social agendas where we wanted to make everyone a homeowner. In order to do this, the US Government implicitly backed mortgage backed securities through Fannie Mae and Freddie Mac. This caused a credit bubble, especially with the advent of NINA and NINJA loans. Home prices inflated, and as with all bubbles, when the music stops there is a massive price correction. Low interest rates increase consumer credit and people tend to spend beyond their means. Nobody is "betting" against the consumer. Banks are not obligated to give you credit or favorable APR and nobody is forcing you to use it. What happened in the last financial crisis was that some very smart/lucky people realized that subprime debt was far riskier than markets were pricing in. This let them buy cheap insurance in the form of swaps on these CDOs. Blame the politicians, not the banks.

Re: Credit card APRs compared to Prime Rate

haulingthescoreup — Sat, 24 Mar 2012 16:58:47 GMT

@Gollum wrote:
Almost all credit card interest rates are tied to the Prime Rate, which has been 3.25% since December 16, 2008:
http://research.stlouisfed.org/fred2/data/PRIME.txt

The average credit card interest rate is currently 15% (dunno which domains are allowed for this forum, so google it for yourself). That's Prime Rate plus 11.75%.

In the late 1990s and early 2000s, the Prime Rate reached a maximum of 9.25%. My credit card interest rate during that period was 5.9%. That's Prime Rate minus 3.35% at worst.

The current discrepancy between the Prime Rate (3.25%) and the average credit card interest rate is remarkable. I doubt credit cards have ever had a higher average iinterest rate compared to the Prime Rate than the current situation.

Since many banks are effectively betting against consumers (by offering high APR reward cards), I suggest consumers err on the side of caution:
Go for a lower APR instead of rewards.

Let's look at a hypothetical example:

John Smith has an annual income of $36,000.
He is able to route all of his spending through his high APR rewards card.
He "earns" an average of 1.5% of his income from his card rewards, so he "earns" $45 per month in rewards:
$36,000 divided by 12 months equals $3000 per month
$3000 multiplied by 0.015 equals $45.
So John Smith "earns" $45 per month as long as he pays his credit card balance in full every month.

Now imagine this unfortunate change of circumstances:

John Smith is laid off from his job, so he has to carry a balance on his high APR (22.9%) rewards card.
Carrying a balance of $2000 costs at least $38.17 in interest each month:
$2000 multiplied by 0.229 equals $458
$458 divided by 12 months equals $38.17.

I think high APR rewards cards are betting against the average consumer. We all plan to pay in full every month, but what happens if we are not able to do so?

Here's how you avoid this:

You're talking about running monthly expenses through plastic. And you postulate that all cards are PIF'd each month.

For those of us who do this, it is absolutely crucial that we have that one month's worth of charges set aside in a savings account. If we're laid off/ hit by a bus/ caught up in watching Downton Abbey and forget to go to work/ whatever, that month's worth of charges is paid off from that account. And the moment that we know that our income is ceasing, we stop using plastic. Thus no future CC charges to pay off, until income resumes.

Obviously, we should all have that semi-mythical 6-12 months' worth of expenses set aside in an emergency account, and a few people do. (I'm not there yet.)

But at a minimum, we have to be able to cover every single charge that's out there. That savings is for CC charges, period, not for a new alternator or emergency plumbing expenses or three dozen boxes of Thin Mints. It's ONLY to cover CC charges. (And this I DO have.)

That way, we have the rewards and minimize the risk.

Re: Credit card APRs compared to Prime Rate

pipeguy — Sat, 24 Mar 2012 17:57:27 GMT

Think about how brilliant the banks are and how stupid (in general) we are to embrace their marketing. In any given month we spend X amount on food, gas, living, entertainment, etc. The banks dangle a false carrot in front of us and get us to pay everything with their cards, no cash, no checks and since the fees on debit cards are now limited, no debit card. Every single thing we buy we make sure we use a card from $2 at starbucks, to $6 at subway to $100 a week at Safeway. We are getting cash back ! Who's cash is it anyway?

The CCC get their swipe fees on everything, all day everyday. Whatever you used to buy with cash or a check, bingo swipe fees. Put your cash on a prepaid AmEx, swipe fees and the float. Merchants pay for these swipe fees, you pay with higher prices. In theory you pay off the balance every month, as you would have if you had used cash/checks/debit, but no this month I got a new iPad to I'll catch up next month, swipe fees and interest. Rewarding you for using a card? Nah, the banks win by getting 100% of your spending going through their cards in swipe fees and perhaps interest. Can you imagine getting your paycheck and having 2.75% "disappear" because you get charged for getting money? Merchants put up with this daily - some reward.

I prefer a low interest CC as I usually PIF every month and if I can't afford to PIF I don't buy it unless I get 00% financing - couldn't care less about "rewards" and yeah, I pay cash for my coffee at Starbucks.

Re: Credit card APRs compared to Prime Rate

navigatethis12 — Sat, 24 Mar 2012 18:25:35 GMT

@pipeguy wrote:

Low interest cards and debit cards also cost merchants when you swipe them. Not as much but it is not free. Merchants are not required to accept cards at all. Some still do not and there are people who will use cash there instead. Cheques can also cost because some companies charge to process them. I just do not see what the reason would be to use a credit card if you do not get anything in return. To keep it active you can just charge a few things but if you spend $500 on a 2 percent card you get $10 back. No one is going to make a down payment with $10 but it is ten dollars that you would not get back otherwise.

I see a lot more than 2.75 percent come out of my pay, for things I do not and will not ever use. However, I have no choice in the matter. Merchants can choose to not accept cards and keep all of the profits. Prices in stores are marked up at least fifty percent around here so if a merchant has to "sacrifice" a puny three of that profit I do not think they will go out of business. They are never worried about my finances so I see no reason to worry about theirs.

Re: Credit card APRs compared to Prime Rate

pipeguy — Sat, 24 Mar 2012 20:05:34 GMT

I think you missed the point, navigatethis12:

Re: Credit card APRs compared to Prime Rate

LS2982 — Sat, 24 Mar 2012 20:12:58 GMT

@pipeguy wrote:
Think about how brilliant the banks are and how stupid (in general) we are to embrace their marketing. In any given month we spend X amount on food, gas, living, entertainment, etc. The banks dangle a false carrot in front of us and get us to pay everything with their cards, no cash, no checks and since the fees on debit cards are now limited, no debit card. Every single thing we buy we make sure we use a card from $2 at starbucks, to $6 at subway to $100 a week at Safeway. We are getting cash back ! Who's cash is it anyway?

The CCC get their swipe fees on everything, all day everyday. Whatever you used to buy with cash or a check, bingo swipe fees. Put your cash on a prepaid AmEx, swipe fees and the float. Merchants pay for these swipe fees, you pay with higher prices. In theory you pay off the balance every month, as you would have if you had used cash/checks/debit, but no this month I got a new iPad to I'll catch up next month, swipe fees and interest. Rewarding you for using a card? Nah, the banks win by getting 100% of your spending going through their cards in swipe fees and perhaps interest. Can you imagine getting your paycheck and having 2.75% "disappear" because you get charged for getting money? Merchants put up with this daily - some reward.

I prefer a low interest CC as I usually PIF every month and if I can't afford to PIF I don't buy it unless I get 00% financing - couldn't care less about "rewards" and yeah, I pay cash for my coffee at Starbucks.

Re: Credit card APRs compared to Prime Rate

pipeguy — Sat, 24 Mar 2012 23:37:46 GMT

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....

Re: Credit card APRs compared to Prime Rate

scottwagnon — Sun, 25 Mar 2012 23:03:28 GMT

@pipeguy wrote:

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.

Well. none of my cards have AF, and i don't spend more then i can pay back, unless its an emergency or i know i am in an economically stable position to do so. i have 9 major cards and 4 store cards, and my current average purchase apr is about 8 percent. thats like 4.75 + prime. (0% offers are easier to come by nowadays.)

i don't care that the little guy is charging me more for the soda for using my card. i get some of it back anyway in cash rewards. in a way as i see it; merchants are helping to pave the way to a well built, solid, strong credit profile. the little guy is happy i bring him business. i don't care that i am playing the card game. i like having to seemingly foolishly juggle credit cards. it just proves to future opportunity providers that i am a SOLID green.

i feel my only mistake here is that i am choosing to use cards that are provided by mega banks that are the least contributing for the local communities. i intend to eventually maintain credit with mainly small banks and credit unions.

still want that ventureone card though.

Re: Credit card APRs compared to Prime Rate

navigatethis12 — Sun, 25 Mar 2012 13:38:53 GMT

@pipeguy wrote:
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

It is a good thing they did not review me because they would be wrong. I do not spend any more money now that I did when I used a debit card or cash. In fact I think I actually spend less. Most of my money gets put away as I like watching the balance grow, not shrink. I do not buy into the dangers of using a debit card but it would be an inconvienve if one of my accounts was drained. Banks may credit back some funds but will not credit back all until the investigation is complete. My card has never been compromised but there is always a chance I guess. Also in using a debit card you get nothing in return. If prices really are up because of rewards, not using a rewards card means you are paying even more.

@scottwagnon wrote:

Well. none of my cards have AF, and i don't spend more then i can pay back

That is what I was saying. The banks do not make any money off of me. Off of the merchants when I swipe the card yes, but not me personally. I have never paid interest and I have never and never will pay a fee to be able to use a card. I also only use the card that gets the most cashback. American Express Blue Cash Everyday will not see the light of day until July when the Freedom stops offering 5% on groceries. After that the Freedom will see no more action. So because I maximize rewards the banks lose even more money on me.

I know there are people who get sucked into marketing and end up in debt and with trashed credit. I do not think people should blame the banks for this as banks do not force anyone to do anything. The banks do what will make them the most profit just like the rest of the world.

I have gotten around $1500 this year from checking account and credit card promotions. I have also gotten over $600 in cashback. I personally would say that is a big win for me.

Re: Credit card APRs compared to Prime Rate

scottwagnon — Sun, 25 Mar 2012 23:07:56 GMT

navigatethis12 wrote:

American Express Blue Cash Everyday will not see the light of day until July when the Freedom stops offering 5% on groceries. After that the Freedom will see no more action. So because I maximize rewards the banks lose even more money on me.

i would have said almost exactly the same thing, as i also have exactly the same agenda; except i may continue using the freedom after july, but not as much. right now it isn't seeing any action.

Re: Credit card APRs compared to Prime Rate

pipeguy — Mon, 26 Mar 2012 00:59:42 GMT

@navigatethis12 wrote:

I know there are people who get sucked into marketing and end up in debt and with trashed credit. I do not think people should blame the banks for this as banks do not force anyone to do anything. The banks do what will make them the most profit just like the rest of the world.

I have gotten around $1500 this year from checking account and credit card promotions. I have also gotten over $600 in cashback. I personally would say that is a big win for me.

Do you think the "typical Card holder" spends $30k+ a year in just specific categories to pick up $1500 a year?

As far as the banks or CCC's these are the same people that spend $40-$50 million on consultants and market research to devise ways to maximize overdraft fees to the tune of over $100 billion in profits. These practices have resulted in "refunds to customers" to the tune of several Billion - seems they came out fine in the end.

Note that I am NOT anti-bank and I have no problem with CCC's making their money (profit) off their cards. What I find incredible is that the banks (and CCC's) have brainwashed (conditioned) us the public into thinking that every dollar we spend has to go through one of their payment processes so when we spend our money, the "issuers" get their skim / vig off of every transaction.

In most cases, I'd guess over 75% or more, the Prime + Margin APR plus Annual Fee (if there is one) more than erases any rewards.

Re: Credit card APRs compared to Prime Rate

CreditScholar — Mon, 26 Mar 2012 04:19:54 GMT

@pipeguy wrote:
@navigatethis12 wrote:

I know there are people who get sucked into marketing and end up in debt and with trashed credit. I do not think people should blame the banks for this as banks do not force anyone to do anything. The banks do what will make them the most profit just like the rest of the world.

I have gotten around $1500 this year from checking account and credit card promotions. I have also gotten over $600 in cashback. I personally would say that is a big win for me.
Do you think the "typical Card holder" spends $30k+ a year in just specific categories to pick up $1500 a year?

As far as the banks or CCC's these are the same people that spend $40-$50 million on consultants and market research to devise ways to maximize overdraft fees to the tune of over $100 billion in profits. These practices have resulted in "refunds to customers" to the tune of several Billion - seems they came out fine in the end.

Note that I am NOT anti-bank and I have no problem with CCC's making their money (profit) off their cards. What I find incredible is that the banks (and CCC's) have brainwashed (conditioned) us the public into thinking that every dollar we spend has to go through one of their payment processes so when we spend our money, the "issuers" get their skim / vig off of every transaction.

In most cases, I'd guess over 75% or more, the Prime + Margin APR plus Annual Fee (if there is one) more than erases any rewards.

It's because the majority of the public is quite ignorant when it comes to financial matters, yet every man and his dog has an opinion about it. Banks exist to make money, and if individuals don't understand how the game is played... well then that's too bad for them.

People need to make the best decisions for themselves, and the banks are definitely not going to point out what those are to you. I frankly don't care about the "typical card holder" because they're not the one paying my bills. Over the past 13 years I've pushed about $1M in personal spending through my CCs, and I've also never paid a single dollar of interest.

Call it what you like, but it's possible to profit off of the system as it's currently setup. If other people can't do the same for whatever reasons, too bad. Everyone is free to make their own choices, including whether they use credit or not.