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.
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3 comments:
Shunzhi it's Chris again
seems like I am the first to comment on your blog again
Firstly I would like to say for anyone that does not know about the economic slowdown, it should be pretty evident to them now since banks are now feeling its affect. But this economic slowdown can also be seen as a positive thing as people could hold off using credit cards till the APR or interest rates are affordable then cash in on it. But to now know that banks are taking a turn for the worst, could put the fear of the recession into every single individual. Overall pretty could blog and keep with the theme of the worlds economy or economic slowdown.
Hi,We did the blog on the same topic, but mine was the credit fees increased in Canada. I'm not sure about the US, but I think that lowering the rate even below average is a good idea at this point of the year when people are consuming and dependent on credit cards mostly. Because it gives confident to the consumers in using the credit cards instead of using cash. However, while lowering the rate, the company needs to find a way to make up for the losses during this period like extra charges and so on. All of this, is affected by the global economy went down, which affected everywhere in our life. I hope that the economy would come up for the benefits for both business and consumers.
Hi, Shunzhi..
That's true, there is always an economy inflation before economy depression. It is not surprise many banks are decreasing their credit card rates right now since that is the only way to increase their profits. Abusolutly, the bank is one of the organazation that will suffer a lot in economy ressesion, decrease interest rates, credit card rates and do anything will that could protect them from suffering a lot. Back on topic, I think the banks can also decrease limits of credit card when they decrease their rates.
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