Thursday, July 12, 2012

Credit Card Rate vs. CD Rate

In my last post, I offered the following chart.


Click to enlarge.

After giving this more thought, I think the following chart may be more appropriate. I offer two exponential trend lines based on the data points of the same color.


Click to enlarge.

1. When times are relatively good (and most people can therefore pay their credit card bills in a timely fashion) the interest rate spread can be lower. You can see this in the blue trend line.

2. When times are relatively bad the interest rate spread must be higher. For example, if one out of ten people can't pay their credit card bills then the banks have to make up the difference on the other nine out of ten people. You can see this in the red trend line.

What do the overall long-term trends in the chart say about the health of our future economy? It's just an opinion, but I think I can sum it up in one word.

Permabear

Source Data:
St. Louis Fed: Credit Card Rate vs. CD Rate
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3 comments:

  1. friedJuly 13, 2012 at 10:35 AM

    I haven't paid a nickel of interest in 12 years, when I read a comment that resonated with me..."I don't pay interest, I collect it". I don't know why that got thru to me, but it did. I am a long-term credit deadbeat, and proud of it. That said, I looked at the rates on the two CC cards I use...12.99 is the highest. Where could you get that kind of return? That said, I am surrounded by friends who make a lot more than I do...and who carry balances as well as car leases, et. al. You can't tell folks what to do, but in my heart I wish they would just pay up and start starving the banks...this is just such easy money for the banksters.

    ReplyDelete
  2. friedJuly 13, 2012 at 10:37 AM

    When it comes to banks....I hate the game and the players.

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  3. Stagflationary MarkJuly 13, 2012 at 1:02 PM

    fried,

    Where could you get that kind of return?

    I hear that!

    July 12, 2012
    Credit Card Surcharges May Be Coming to a Retailer Near You

    Paying with cash “hurts” more because we’re more aware of how much we’re spending in the moment.

    That's just not a part of my mindset. When I make a purchase I think about how many hours I would have to work (at minimum wage) to pay for it. That's what would hurt if the economy continues to deteriorate over the long-term.

    ReplyDelete