MADISON, Wis. (8/8/14)--Consumers may want to think twice before signing up for a retailer-issued credit card--and instead stick with a credit union card--especially if they don't expect to pay off their balances in full and on time.
The average annual interest rate on credit cards from the nation's largest retailers has climbed by more than 2 percentage points in recent years up to a whopping 23%, according to a CreditCards.com survey.
Zales recorded the highest annual percentage rate among those polled at 28.99%; OfficeMax recorded the lowest at 9.99%; and Toys R Us/Babies R Us saw the biggest increase, with a 5.75% jump up to 26.99% overall.
Credit unions, meanwhile, posted an average interest rate of 9.17% as of Aug. 7, according to Informa Research Services, which is also nearly 2% better than the average bank interest rate on credit cards.
Despite retail credit cards carrying higher interest rates, however, consumers still frequently opt to use them. The Federal Reserve reports that private-label retail cards comprised about $270 billion in sales last year, according to CreditCards.com.
Rewards programs offered by the stores could be incentivizing consumers to stick with their cards, as the survey discovered many retailers have expanded their credit card products to feature a wider selection of discounts and rewards.
"In all, the survey portrays a market segment that is offering better rewards to consumers who can pay off their shopping sprees, and bigger debts to those who don't," Sienna Kossman wrote on CreditCards.com (Aug. 7).
Credit unions offer reward programs tied to their credit cards as well. About 55% of credit unions that offer platinum/titanium cards offer rewards programs, and 40% of those with gold programs feature rewards, according to the Credit Union National Association's 2013-14 Fees Report.
Additionally, larger credit unions are more likely to offer rewards programs, with 70% to 80% of credit unions with more than $500 million in assets carrying credit cards that feature rewards.
Only 1% of all credit unions charge fees for the reward programs.