Chapter 14 Blog

Article From Forbes:
http://www.forbes.com/feeds/ap/2008/11/10/ap5672632.html


Summary

The article I read is about the falling interest rates charged on credit cards in the US. According to bankrate.com,The interest rates, or the APR (stands for annual percentage rates) of low-interest cards, which offer lower-than-average rates to customers with strong credit histories have experienced a fall of 0.02 percent. The rates for cash back cards, which offer card rewards to credible customers went down by 0.07 percent. While balance transfer cards, which allow customers to consolidate outstanding debt from one of more cards slipped from 13.39% to 13.33% during the last week. The rates of these popular credit cards had been falling for almost three straight weeks up to now. The average APR of the top ten banks and markets in the US is 13.30%, 0.03% lower than the last week.

Connection

This article is closely related to the Chapter since one whole section of the Chapter talks about credit cards. The article introduces some of the popular credit cards used in the US to us. As mentioned in the chapter, more and more people are using credit cards for most of their daily transactions. Some of the merchants nowadays also prefer credit cards over cash. This is because by using credit cards, one does not need to carry cash with them therefore it is more convinient and more safe. The bank, normally also the issuers of the major credit cards, earn profit from credit cards by charging the merchants accepting credit cards an annual fee, and by charging bank customers APR, or Annual Percentage Rate. When one consumes more, the amount of APR he/she needs to pay increases. Therefore, when banks decide that they need to earn more profit, they would usually increase the APR.

Reflection

I once again relate this article to the recent global economic slowdown. I remember over the past few years, there are often news about banks continuously increasing the APR. Though most people were against the rising APR, they still continue to use credit cards. Later I found out this was because the World's economy had been boosting during previous years. People earned more income and there were more job oppurtunities. Therefore they consumed more money didn't really care much about the APR. But because of the recent recession around the world, people aren't consuming as much as they used to. Some of them now choose to use cash instead of credit cards to avoid paying the high APR. This significantly decreases the banks' earnings. Therefore, to encourage customers to use credit cards and consume more, many of the major banks are lowering their APR. Right now, this seems to be the only way to increase the banks' profit. I'm sure that the rates will starting rising again once the recession is over.