Store cards may seem like a tempting offer at checkout, with promises of discounts and perks. However, a study from Bankrate has found that the interest rates on store cards have reached a record high, with an average rate of 30.45% compared to the overall average for credit cards of roughly 21%. This means that carrying a balance on a store card could result in significant interest charges, potentially outweighing any initial discounts or benefits offered at the time of signing up.
Many popular retailers were found to charge extremely high interest rates on their store cards, with some reaching as high as 35.99%. This includes brands like Athleta, Banana Republic, Nordstrom, JCPenney, and others. The study highlighted the potential long-term costs of carrying a balance on these cards, with interest charges adding up quickly and making purchases much more expensive than initially anticipated.
One example provided by the study illustrated how carrying a balance on a store card, even with an initial discount, could result in paying significantly more than the original purchase amount. For instance, making a $1,000 purchase with a 20% discount and carrying an $800 balance at a 35.99% APR could result in owing $570 in interest over nearly 3.5 years, bringing the total cost to $1,370. This demonstrates the potential financial burden of high-interest store cards.
While some retailers offer lower interest rates on their store cards, such as the Amazon Secured Card with a 10% rate, many still charge rates in line with general credit cards. It’s important for consumers to be aware of the terms and conditions of store cards, especially regarding promotional offers that may result in retroactive interest charges if not paid off in full. The key takeaway is to always pay off the balance in full each month to avoid accruing interest charges.
Bankrate’s senior industry analyst Ted Rossman advises against impulsively signing up for store cards at the checkout counter, emphasizing the importance of paying in full each month to avoid high interest rates. While there are limited circumstances in which store cards may benefit loyal shoppers who pay in full and avoid interest, it’s crucial to understand the potential costs and risks associated with these cards. Ultimately, consumers should carefully consider their financial situation and spending habits before deciding to open a store card.
