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The Prime Rate
The prime rate is a nationally followed interest rate used by banks to set the lending rate for different types of consumer and business loans. To determine what is the prime interest rate for a credit card involves understanding how banks use the prime rate to set other rates.
The national prime rate is reported by the Wall Street Journal after polling the nations largest banks. Since 1994, the prime rate has been set at the federal funds target rate offered by the Federal Reserve, plus 3 percent. The federal funds rate is set by the Federal Open Market Committee -- FOMC -- which meets every 6 weeks and votes on the level of the rate. In December, 2008, the FOMC lowered the federal funds rate to a target range of zero to 0.25 percent, essentially zero. The prime rate was reset to 3.25 percent and currently remains at that level, a record low.
The current prime rate can be found in the Wall Street Journal or on most of financial websites such as the popular site Bankrate. A credit card that charges the prime rate as the card's rate would currently be at 3.25 percent. This is a very attractive rate for any credit card holder.
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Credit Card Rates
Before the financial crisis of 2007-2008, and the ensuing economic recession, there were credit card companies offering cards with rates at or close to the prime interest rate. Those days appear to be gone for credit card holders. The recession has led to more credit card defaults, pushing banks to increase rates for the credit card holders still paying and the new credit card rules enacted by Congress were used by the credit card companies to raise or keep rates at higher levels.
Using the Internet to find low credit card rates provides unimpressive results. The credit card aggregators have lists of cards with zero percent introductory rates, but after the introductory period, the rates are 10 percent and higher. A analysis of the cards offered by the major national bank and card issuers does not show any link between credit card rates and the national prime rate.
Smaller local and regional banks are still offering credit cards with interest rates at the prime rate plus 3 to 5 percent. Some banks listed on the Bankrate website with low, prime rate tied credit cards are:
- First Command Bank
- Zions Bank
- Citizen's Trust Bank
Also on the list at Bankrate were some credit unions. Credit unions usually have criteria for membership and are set up to serve local customers. A check of one of the listed credit union's website showed it is no longer offering a low, prime rate linked credit card.
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Finding a Low Rate Credit Card
To get a prime rate linked credit card with a low interest rate, you probably need to stay away from credit cards from the major banks using the online application process. To get a credit card with a low rate tied to the prime rate means you will need to do some leg or telephone work as well as Internet research. The best rates may require you to mail in an application rather than apply online.
Start with the credit unions in your area. Call ones you can join and ask about their credit card rates. If one is offering a card with a low rate tied to the prime rate, go on in and fill out the application. Call or check the website of independent banks in your area and the banks listed above and ask the same questions. The best credit card rates currently available seem to be the prime rate plus a margin of 3 to 5 percent. At the current prime, this would be card rates of 6.25 to 8.25 percent.
These banks will also require that you have a top notch credit score! Also, if and when interest rates start to increase again, credit card rates linked to the prime rate will also increase. Currently the FOMC is holding firm at a low federal funds rate. If inflations starts to increase or the economy improves, rates will start to climb.
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Bankrate.com: Low Interest Credit Cards: http://www.bankrate.com/credit-cards.aspx
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