Fed maintains target rate at near zero at January meeting

In its first meeting for 2021, and its first one during the Biden administration, the Federal Reserve’s rate-setting body voted to hold its target interest rate steady in the 0% to 0.25% range.

This means there is not likely to be much upward movement in variable credit card interest rates, which are typically tied to the Fed’s target interest rate, or the fed funds rate.

The Fed will also continue with its purchases of at least $80 billion in Treasury securities and $40 billion in agency mortgage-backed securities every month to further support the economy.

See related: What to expect from Biden, Harris on financial policy

Economic outlook

In a media release, the Federal Open Market Committee said, “The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”

The course of economic growth will depend on how effectively the pandemic is reined in, including with the use of vaccinations. Meanwhile, the Fed will aim to maintain its almost 0% target rate until it deems the economy to have attained “maximum employment” and inflation outpaces its 2% target for a while.

The Fed’s aim is for inflation to overshoot its 2% target for a while so that average inflation remains around 2%, considering that inflation has been running below target for several years now.

In a related press conference, Fed Chairman Jerome Powell noted that there are positive signs for the economy going forward, and a number of forecasts call for a stronger economy in the second half of the year because of vaccine rollouts and fiscal stimulus. He expects that “widespread vaccinations would enable us to put  the pandemic behind us.”

Powell added that there’s “nothing more important to the economy right now than people getting vaccinated” since that will enable everyone to get back to work. He himself has had his first vaccination shot and expects to be getting a second one soon, he mentioned.

However, he sees the pandemic as still presenting “considerable downside risk”  to the economy considering that no one knows how the vaccination rollout will go. Given this, the Fed has set its policy to be accommodative until it actually sees economic improvement.

See related: Millennials defer debt payoff, tap savings in pandemic

Full employment recovery a long way off

Considering that the shock from the pandemic “was unprecedented both in terms of its nature and its size,” in modern history, the economy is still at least nine million jobs short of maximum employment, according to Powell. He also noted that the real unemployment rate is at least 10% taking into account people who have dropped out of the labor force.

He is concerned about any potential long-term damage from unemployment to people, which will ultimately prevent the U.S. economy from achieving its full productive potential.

Powell also pointed to racial disparities in terms of employment gaps, wealth gaps and home-ownership gaps that “even controlling for many other factors, they’re persistent and difficult to explain.” Broader prosperity for everyone is important since the Fed wants the “potential output of the economy to be as high as  possible.”

See related: Pandemic pins parents under financial strain: Survey

Fed doesn’t see transient inflation rise as a threat

Although there could be a rise in inflation as the economy  reopens, Powell expects this to be transient and not “troubling inflation.” The world has been facing “disinflationary pressures” for a while now, and Powell is more concerned about any damage to people and the economy from tightening its monetary policy too soon than about fighting off the possibility for higher inflation.

He also doesn’t see risks to financial stability as high, based on asset prices and the use of debt by the banking system, businesses and households. News about vaccines and fiscal policy is what is driving asset prices, as he sees it.

It’s premature for the Fed to think about rolling back its securities purchases and start being less accommodative, according to Powell. The Fed has learned a lot from its experience after the global financial crisis and the “taper tantrum” that ensued after it decided to start tightening its monetary policy during that recovery.

Accordingly, it will communicate its policy stances well in advance and be transparent this time around. “It’s too soon to be worried. When it comes (time) to exit, we know how to do that,” Powell said.

Source: creditcards.com

Apple Card temporarily offering $50 sign-up bonus for Exxon Mobil purchases

Many rewards credit cards offer the opportunity to earn a sign-up bonus. Even some no-annual-fee credit cards offer them, allowing consumers to maximize cash back or points without paying every year for simply having the card.

The Apple Card only started offering a sign-up bonus in June, when Apple cardholders could earn $50 in Daily Cash after spending $50 at Walgreens. This was followed by offers in September, October and November, most recently including a $75 sign-up bonus after spending $75 at Nike in-store and online via Apple Pay.

And now through Jan. 31, new Apple Card holders can score a slightly lower sign-up bonus. You’ll get $50 in Daily Cash after you spend $50 or more on purchases with Exxon or Mobil.

See related: Apple Card: One year later

How to get the Apple Card sign-up bonus

New Apple Card holders who open an account between Jan. 8 and Jan. 31, 2021 can earn $50 in Apple’s Daily Cash when they spend $50 using Apple Card with Apple Pay (where available) at Exxon and Mobil stations at the pump or at attached convenience stores in the U.S., within 30 days of the account opening. To pay at the pump with Apple Pay, you can use either the Exxon Mobil Rewards+ mobile app or contactless payment.

This month’s sign-up bonus from Apple is lower than its previous offer from Nike, but on par with the older offers from Walgreens and Panera Bread, both of which got you just $50 in Daily Cash back after a matching spend.

You can apply for the Apple Card from the Wallet app on your iPhone.

Should you apply for the Apple Card now?

If you have been considering applying for the Apple Card, it might be a good idea to do so this month, especially if you commute or drive often enough to spend $50 at gas stations in a month. While the card doesn’t always come with a sign-up bonus, new cardholders currently have a great chance to earn one.

Besides that, the Apple Card offers 3% cash back on Apple purchases, as well as 3% cash back when you use Apple Pay for Walgreens, Nike and Uber and Uber Eats purchases and at T-Mobile stores. Other Apple Pay purchases will earn you 2% in cash back. When you use the physical card, the cash back rate goes down to 1%.

However, the Apple Card might not make sense for everyone. The earning rate is good on Apple purchases, but if you’re looking for a primary cash back card to add to your wallet, there might be better options.

For example, with the Blue Cash Everyday® Card from American Express you can earn 3% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%) and 2% cash back at U.S. gas stations and select U.S. department stores. All other purchases will get you 1% in cash back.

Another alternative is the Capital One Quicksilver Cash Rewards Credit Card, which earns you unlimited 1.5% cash back on every purchase and doesn’t have an annual fee. Plus, you only need to spend $500 in the first three months with the card to earn its $200 sign-up bonus.

There are quite a few other cards to look into. Shop around before you decide to take advantage of Apple’s offer. The sign-up bonus alone shouldn’t tempt you into signing up for a card that doesn’t align with your spending.

See related: Apple card credit score requirements and reasons for denial

Final thoughts

If you’re an Apple enthusiast and have been looking into the Apple Card for some time, now might be a good time to apply. The new limited-time sign-up offer gives you an opportunity to earn an easy sign-up bonus – something the card doesn’t normally have.

Source: creditcards.com

Amazon Prime Card offering new Whole Foods card art, limited-time bonus

On Jan. 20, 2021, Chase announced a new card art option for the Amazon Prime Rewards Visa Signature card featuring Whole Foods Market and added a limited-time sign-up bonus offer for those who prefer to shop at Whole Foods in-store.

Amazon has become a leader in grocery shopping during the pandemic, with consumers avoiding grocery stores due to health safety concerns – not to mention the convenience of shopping from a web browser. Amazon Prime members can enjoy speedy free delivery, as well as get access to online shopping at Whole Foods Market and special member deals when shopping in-store.

They can also count on extra savings if they carry the Amazon Prime Rewards card from Chase – or if they’re looking to apply in the next few weeks.

Here’s what you need to know.

Amazon Prime Rewards Visa Signature card

Amazon Prime Card Whole Foods

Our rating: 3.8 out of 5
Score required: Good to excellent
Type of card: Cash back
Spending categories: Amazon, Whole Foods, restaurants, gas stations, drug stores

  • 5% back on Amazon.com and Whole Foods purchases
  • 2% back on restaurant, gas station and drug store purchases
  • 1% back on other purchases
  • $70 Amazon.com gift card upon approval or $100 statement credit after spending $100 at Whole Foods in first 2 months
  • No annual fee

Our take: While the Amazon Prime Rewards card offers excellent cash back on Amazon and Whole Food purchases, it might not be the best choice for customers who don’t currently have a Prime membership and aren’t looking to subscribe.

A new Whole Foods card design and limited-time offer

Chase introduced a new card design option for new Amazon Prime Rewards cardholders, featuring Whole Foods Market art. New cardmembers with an eligible Prime membership can choose the new design when they apply for the card. If you’re an existing cardholder and would like to switch to the new design option, you can call in to request a new card after Jan. 22, 2021.

If you frequently shop at Whole Foods in-store, the new limited-time introductory offer can also be exciting news for you. Through March 3, 2021, new Amazon Prime Rewards Visa cardholders can earn a $100 statement credit after spending $100 in Whole Foods Market stores in the first two months from account opening. Alternatively, they can still choose the standard $70 Amazon gift card offer as a sign-up bonus.

Considering the standard bonus is lower, the new temporary offer might be a better deal. On the other hand, if you avoid shopping in-store or normally use Amazon Fresh for buying groceries, the gift card might make more sense for you.

Should I start shopping at Whole Foods if I have an Amazon credit card?

If you already shop at Whole Foods, the 5% back with the Amazon Prime Rewards Signature Visa and 10% off specially marked items is a good deal. The discounts, though, don’t make Whole Foods cheaper than other grocery stores.

In fact, according to a study from 2019, Whole Foods remains the most expensive grocery store with its prices at 34% above Walmart, which was reported to have the lowest prices overall. If your goal is to save on groceries, Whole Foods is evidently not the best option – even if you carry the Amazon Prime card.

Other cards to consider

The Amazon Prime Card isn’t the only option you should consider if you often shop on Amazon or at Whole Foods.

See related: Which is the best card to use on Amazon.com purchases?

For instance, with the Chase Amazon.com Rewards Visa card, you can get a $50 Amazon gift card upon approval and earn 3% on Amazon and Whole Foods purchases, 2% percent at restaurants, gas stations and drugstores and 1% on all else. If you don’t have a Prime membership and aren’t looking to subscribe, this is a good option, since the card doesn’t require for a cardholder to be a member.

If you do have a membership and shop on Amazon a lot, the Amazon Prime card is a better deal. With 5% for purchases made at Whole Foods and on Amazon, 2% at restaurants, gas stations and drugstores and 1% on all else, this card is hard to beat for Amazon and Whole Foods lovers.

If you’re looking for a card to buy groceries, consider the Blue Cash Preferred® Card from American Express that could save you more than with the Amazon Prime Visa at Whole Foods. Why? Blue Cash Preferred cardholders earn 6% cash back at U.S. supermarkets (up to $6,000 in purchases per year, then 1%).

See related: Best credit cards for grocery shopping

Bottom line

Now you can stack your rewards at Whole Foods, earning cash back and the limited-time bonus with the Amazon Prime Card, and you can get extra savings from the loyalty program. Whether it makes sense to shop at Whole Foods, even with rewards cards and the loyalty program, is up to you.

Source: creditcards.com

Business credit cards

If you are a small-business owner and cash is not flowing and bills are piling up, the most important thing to do is contact your card issuer.

Some banks are also providing assistance in case you can’t pay your business credit card bill.

Another coronavirus complication: Scams

As consumers wrestle with the impact of the coronavirus, scammers are trying to take advantage of the situation.

In a June 2020 public service announcement, the FBI warned that the increasing use of banking apps could open doors to exploitation.

“With city, state and local governments urging or mandating social distancing, Americans have become more willing to use mobile banking as an alternative to physically visiting branch locations. The FBI expects cyber actors to attempt to exploit new mobile banking customers using a variety of techniques, including app-based banking trojans and fake banking apps,” the PSA warns.

Scammers might also be capitalizing on health and economic uncertainties during this time. In one such scam, cybercriminals are sending emails claiming to contain updates about the coronavirus. But if a consumer clicks on the links, they are redirected to a website that steals their personal information, according to the Identity Theft Resource Center (ITRC).

Identity theft in 2020: What you need to know about common techniques

Bottom line

The outbreak of a disease can upset daily life in many ways, and the ripple effects go beyond our physical health. Thankfully, many card issuers are offering relief. If you’re feeling financially vulnerable, contact your credit card issuer and find out what assistance is available. And while data security may seem like a secondary consideration, it’s still important to be vigilant when conducting business or seeking information about the coronavirus online.

Source: creditcards.com

Average credit card interest rates: Week of January 13, 2021

The average credit card interest rate is 16.05%.

The average minimum credit card APR held firm Wednesday after lenders declined to revise rates on new offers for another week. As a result, borrowers in the market for a new card continued to enjoy starting APRs that are more than a full point lower on average than they were a year ago.

Cardholders with excellent credit are enjoying some of the sharpest rate savings this year. For example, lenders have clipped APRs on some of the most popular rewards cards by at least a point and a half in the past year. For example, the Discover it® Cash Back card currently starts APRs at 11.99%, which is well below the minimum APR most low rates advertise. A year ago, by contrast, it advertised a minimum APR of 13.49%.

Some of the most striking rate decreases have occurred on travel cards, which had surged to record high rates in 2019. For example:

  • In January 2020, the Chase Sapphire Reserve charged an 18.49% minimum APR. Today, it starts APRs at 16.99%.
  • Similarly, APRs on the Citi Premier® Card currently start at 15.99%. A year ago, the lowest APR cardholders could get was 17.49%.
  • The lowest rate Hilton enthusiasts could get on the Hilton Honors American Express Card last winter was 17.24%. Today, the card’s APR starts at 15.74%

As a result, the average rewards card APR has tumbled from 17.11% in the second week of 2020 to 15.76% today, while the average airline card APR has fallen from 16.9% to 15.53%.

As the end to the coronavirus pandemic edges closer, lower rate travel cards could become more attractive to cardholders who are dreaming of a post-pandemic vacation.

Even low interest and balance transfer cards are much less expensive nowadays, giving cardholders who need to carry a balance a temporary reprieve.

Last January, for example, the U.S. Bank Visa Platinum Card and Citi Simplicity® Card both charged a 15.49% APR. Now, borrowers could secure an APR as low as 13.99% on the U.S. Bank Visa Platinum and as low as 14.74% on the City Simplicity. Meanwhile, Bank of America has reintroduced the BankAmericard® credit card after a temporary pause with a minimum APR of 12.99%. A year ago, the best APR cardholders could get was 14.49%.

Most cards received their biggest rate cuts in March and April when the Federal Reserve cut its benchmark interest rate, the federal funds rate, by 1.25 percentage points. When federal interest rates change, most lenders also match the changes on new card offers that are tied to the U.S. Prime Rate.

However, a few lenders have cut rates on select cards by an even larger amount. For example, Wells Fargo cut the APR on the Wells Fargo Rewards® card by five and a half percentage points last year, making it one of the lowest rate cards Wells Fargo offers. Cardholders who qualify could get a rewards card APR as low as 12.49%.

Today’s lower rates won’t last forever, though, since most are due to federal interest rate changes, rather than independent rate strategies.

As soon as the Federal Reserve begins increasing rates, the APRs on all variable rate cards tied to the prime rate will also go up.

It will be a long time, though, before cardholders in good standing will have to worry about higher rates on cards they’ve already opened. The Fed has said it is unlikely to hike rates for at least another year.

See related: How do credit card APRs work?

All information about the U.S. Bank Visa Platinum Card and Citi Simplicity Card has been collected independently by CreditCards.com and has not been reviewed by the issuer. These cards are no longer available through CreditCards.com.

CreditCards.com’s Weekly Rate Report

Avg. APR Last week 6 months ago
National average 16.05% 16.05% 16.03%
Low interest 12.77% 12.77% 12.83%
Cash back 15.85% 15.85% 16.09%
Balance transfer 13.85% 13.85% 13.93%
Business 13.91% 13.91% 13.91%
Student 16.12% 16.12% 16.12%
Airline 15.53% 15.53% 15.48%
Rewards 15.76% 15.76% 15.82%
Instant approval 18.38% 18.38% 18.65%
Bad credit 25.30% 25.30% 24.43%
Methodology: The national average credit card APR is comprised of 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Source: CreditCards.com
Updated: January 13, 2021

Historic interest rates by card type

Some credit cards charge even higher rates, on average. The type of rate you get will depend in part on the category of credit card you own. For example, even the best travel credit cards often charge higher rates than basic, low interest credit cards.

CreditCards.com has been calculating average rates for a wide variety of credit card categories, including student cards, balance transfer cards, cash back cards and more, since 2007.

How to get a low credit card interest rate

Your odds of getting approved for a card’s lowest rate will increase the more you improve your credit score. Some factors that influence your credit card APR will be out of your control, such as the length of time you’ve been handling credit.

However, even if you’re new to credit or are rebuilding your score, there are steps you can take to ensure a lower APR. For example:

  1. Pay your bills on time. The single most important factor influencing your credit score – and your ability to win a lower rate – is your track record of making on-time payments. Lenders are more likely to trust you with a competitive APR – and other positive terms, such as a big credit limit – if you have a lengthy history of paying your bills on time.
  2. Keep your balances low. Lenders also want to see that you are responsible with your credit and don’t overcharge. As a result, credit scores take into account the amount of credit you’re using, compared to how much credit you’ve been given. This is known as your credit utilization ratio. Typically, the lower your ratio, the better. For example, personal finance experts often recommend that you keep your balances well below 30% of your total credit limit.
  3. Build a lengthy and diverse credit history. Lenders also like to see that you’ve been successfully using credit for a long time and have experience with different types of credit, including revolving credit and installment loans. As a result, credit scores, such as the FICO score and VantageScore, factor in the average length of your credit history and the types of loans you’ve handled (which is known as your credit mix). To keep your credit history as long as possible, continue to use your oldest credit card so your lender doesn’t close it.
  4. Call your lender. If you’ve successfully owned a credit card for a long time, you may be able to convince your lender to lower your interest rate – especially if you have excellent credit. Reach out to your lender and ask if they’d be willing to negotiate a lower APR.
  5. Monitor your credit report. Check your credit reports regularly to make sure you’re being accurately scored. The last thing you want is for a mistake or unauthorized account to drag down your credit score. You have the right to check your credit reports from each major credit bureau (Equifax, Experian and TransUnion) once per year for free through AnnualCreditReport.com.

Source: creditcards.com

My 2021 credit card predictions

In 2020, the coronavirus pandemic brought a huge shift in spending as the country shut down. The travel industry specifically took a hit, and many card issuers responded by adding rewards on everyday spending to travel cards.

While I think travel spending will eventually rebound in 2021, it seems likely that the additional perks on everyday spending are here to stay.

Read more from our credit card experts.

Ask Ted a question.

Everyday spending

Early on in the COVID-19 pandemic, many card issuers pivoted to grocery spending, food delivery and takeout, streaming services, home improvements, and other everyday spending categories out of necessity. In 2021 and beyond, I think they’ll do so by choice.

These perks really seem to be resonating with consumers, whether we’re talking about earning bonus rewards for these types of spending, redeeming points or miles at a higher than normal ratio to offset related purchases, receiving free premium memberships for services such as DoorDash and Instacart, or getting statement credits to defray eligible costs.

It all adds up to cash back with a twist. There’s an experiential component that cardholders love and habitual aspects that appeal to card issuers trying to build loyalty. If you’re more likely to use a card that offers these perks – especially if you’re willing to pay an annual fee – that’s a win all around.

See related: Guide to Chase Pay Yourself Back

Travel

Necessity is the mother of invention, of course, and the fact that the pandemic crippled travel led to many of the aforementioned incentives. I expect travel to bounce back in a big way once we have widespread vaccine availability. Late Q2 or early Q3 seems like a good bet, according to health experts.

This should unleash an incredible amount of pent-up travel demand. People want to see their families and friends, they want to explore bucket list destinations and many will have money (and points and miles) to burn after a year of lockdowns.

I expect the good deals will last for a while because it’s a competitive industry, and business travel should remain depressed longer than leisure travel. Airlines will want to pack planes, hotels will want to fill rooms and cruise lines will be especially desperate for business. We should see favorable prices along with other incentives to liquidate rewards and sign up for travel credit cards.

Approval standards

In 2020, lenders became much more risk-averse as the pandemic created a ton of uncertainty and job losses. In Q2, 72% of credit card issuers tightened their approval standards and 0% eased them, according to the Federal Reserve’s Senior Loan Officer Survey. In Q3, 31% tightened and 4% eased. A similar trend played out with respect to existing cardholders’ credit limits.

This hit balance transfer cards the hardest. According to Mintel Comperemedia, card issuers sent 42% fewer direct mail advertisements for 0% balance transfer cards in the first three quarters of 2020 when compared with the same period in 2019. Card issuers were worried enough that their existing customers wouldn’t pay them back; taking on new customers with existing debt wasn’t particularly appealing.

This will hopefully turn around in the second half of 2021, assuming we have widespread vaccine access and a better economy and job market. I think balance transfer cards will be the last card sector to bounce back, however.

sign-up bonuses. But approval standards will likely remain tight as issuers look for the most creditworthy and affluent applicants. We saw some of this in late 2020, like the 100,000-mile Capital One Venture Rewards Credit Card bonus (since expired) which required $20,000 of spending within the new cardholder’s first 12 months.

I think particularly lucrative bonuses will become more widely available and less restrictive in the second half of 2021. Early in the year, the best offers will probably be reserved for those with high credit scores and high incomes.

Final thoughts

A couple of pleasant surprises this year: Credit card debt and delinquencies both fell in 2021. Credit card debt declined 11% between February and October, according to the Fed. This could be due in part to the government stimulus package passed earlier this year or consumers spending less and prioritizing paying down debt.

While we’re all anxious for our lives to return to normal, carrying less credit card debt would be a good habit to hold onto after the pandemic is over.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.

Source: creditcards.com