Although the Federal Reserve hasn’t increased interest rates since the summer of 2023, retailers across the U.S. seem to be acting differently.

This year, the average interest rate on store credit cards has hit a record high of 30.45%, according to the finance website Bankrate.

Furthermore, another survey by WalletHub reported even higher average interest rates for retail cards at 33.07% as of November.

These rates are considerably elevated compared to standard credit cards, which currently average around 21%, as reported by Bankrate.

During the pandemic, many store credit cards surpassed the previously unbreakable 30% interest-rate threshold.

“The 30% mark was once seen as an unofficial barrier for retail card rates, but most retail cards have now exceeded it,” stated Ted Rossman, a senior analyst at Bankrate.

Bankrate’s findings show that retail card rates increased significantly during the pandemic—rising from an average of 24.35% in 2021 to 26.72% in 2022, and then to 28.93% in 2023.

‘Inflating Profit Margins’

CNBC analyzed Bankrate data and found that over 50 large retailers increased their store card interest rates before the Federal Reserve initiated any rate cuts, which began with a half percentage point reduction in September.

Rossman noted, “We certainly saw substantial increases over the last year. This was significant because there were no major changes made by the Fed between our 2023 and 2024 surveys.” Bankrate conducted their latest survey in early September, right before the Fed’s decision.

“What this indicates is that issuers were inflating their profit margins,” Rossman explained.

Credit card companies are now charging record-high “margins,” which refers to the interest above the prime lending rate that issuers charge.

This is why card rates are currently at unprecedented levels, even surpassing periods when other interest rates were higher.

As of August, the average credit card margin stands at 14.9%, WalletHub reported. This means the typical cardholder pays about 15% in annual interest on top of the prime rate.

“The margins across the entire credit card sector continue to increase,” said Odysseas Papadimitriou, CEO of WalletHub.

Retailers generally collaborate with banking partners when offering credit cards. Various factors influence the interest rates on these cards, including Fed policies, economic conditions, consumer trends, and regulatory matters, according to Sarah Grano from the American Bankers Association.

“The financial services market is very competitive, offering consumers a variety of credit products, including traditional and store-branded options,” Grano added.

Some Big-Box Stores Charge 35.99% Interest

Credit card rates have reached record levels due to aggressive rate hikes from the Fed in 2022 and 2023.

While the Fed halted interest rate increases in July 2023, retailers have continued to escalate their rates. According to Bankrate, the average rate on store cards increased by over a percentage point from 2023 to 2024.

Bankrate’s latest survey reveals several major retailers charging annual interest rates of 35.99%, including Academy Sports + Outdoors, Big Lots, Burlington, Michaels, and Petco. Others, such as Banana Republic, JCPenney, and Walgreens, are close behind at 34.99%.

WalletHub also noted a significant rise in the average rates on store cards, increasing from 29.89% in 2023 to 33.07% in 2024.

Analysts are wary of the implications of these rates for the upcoming holiday season. Shoppers stressed by inflation might turn to store cards for large purchases, possibly overlooking the accrued interest they’ll incur if their balances aren’t paid off before the new year.

“The key advice for consumers is to proceed with caution,” Rossman warned. “Carrying a balance is not advantageous.”

The rise in card rates has been striking over recent years. The average rate across all commercial bank cards jumped from 14.56% in February 2022 to 21.76% in August 2024, according to federal data.

Why are credit card interest rates higher than others?

Credit cards usually have higher interest rates compared to car loans or home mortgages. This is mainly because a credit card isn’t “secured” by an asset that lenders can claim if payments are missed.

Credit card companies take on a risk by lending money to a variety of consumers, many of whom may not repay their debts.

Store credit cards often charge even higher interest rates than regular credit cards, as retail card users typically earn lower wages and have poorer credit ratings, according to retail analysts.

Retailers frequently market these cards directly at the checkout counter, which can create a pressure-filled situation for consumers, making it difficult to read all the terms and conditions carefully.

Furthermore, store cards are facing more competition from buy now, pay later options, which allow consumers to make purchases and split payments into several interest-free installments.

Retail cards are primarily marketed in physical stores, while buy now, pay later options thrive online. Recently, the retail card market has been struggling, according to Rossman.

“The landscape is changing,” said Rossman. “Fewer shoppers are going to stores nowadays.”

Be cautious with deferred interest

It may seem surprising that many consumers would choose credit cards with interest rates of 35%.

Retailers often make these cards appealing with promotional offers. For instance, a new cardholder might get a 20% discount on a large purchase.

One common holiday promotion includes “deferred interest.” Customers can place a large purchase on a store card and generally have six or twelve months to pay it off without incurring interest.

However, interest does accumulate during this period. If the payment deadline is missed, the total interest owed becomes due immediately.

“If they miss the deadline, you’re hit with an exorbitant 30% interest rate, as if you never had a zero percent interest period,” noted Papadimitriou. “And this is legal.”

Many consumers find these terms perplexing and misleading. A survey conducted by WalletHub in 2023 revealed that 62% of Americans think that deferred interest should be illegal.

Despite the confusion, deferred interest remains a favored promotional tool, stated Grano, a spokesperson for the banking sector. In a past report from YSL News, Grano mentioned that customers “benefit from the ability to make gradual payments while avoiding interest, which also helps them steer clear of more costly borrowing options.”