Interest rates have been coming down, right?
Absolutely right, if you're a saver. The rate you're earning on money-market bank accounts may now be below 8 percent.
But absolutely wrong, for buyers who charge their purchases on bank credit cards. The rate on most bank cards has been going up. A typical charge is 19.8 percent today, up from 18 percent a couple of years ago. Some banks charge 21 percent or higher.
On top of that, you usually pay annual fees of $15 to $20, and sometimes higher, according to a recent survey by the Bank Rate Monitor. Some also charge a fee of 2 to 3 percent of any cash advanced on the card, which raises your effective interest rate even more.
And I'm still not through. Some banks are starting to add late fees if your payments don't arrive on time. Most will still let you take 25 to 30 days to repay your bill in full, without charging interest. But a few -- among them, Citicorp Savings in Chicago -- now charge interest right from the first day you make the purchase. (Interest is almost always charged from the first day if you repay your bank card in installments, and on cash advances against your card.)
Cards have become so profitable for many banks that they are eagerly seeking new borrowers. But they are not competing for your business by offering you a lower fee or better interest rate. Instead, they are showering you with gimmicks -- such as travel insurance or the right to buy items from discount catalogues. These gimmicks cost money, and the costs are passed right along to you.
But who needs a discount catalogue, when you probably have plenty of discount stores right around the corner? What you need is a fairer interest rate; you need a cut in the cost of your loans. And the only way to get it, right now, is to shop for a cheaper card or a better way of borrowing money.
Many banks now give cards to any qualified borrower who wants one; you don't have to be a customer of the bank. This means you can use whichever card offers the lowest fees or the best interest rate.
The best buy is one that assesses no annual fee, charges an interest rate not exceeding 18 or 19 percent and offers a grace period of 25 or 30 interest-free days to repay your bill in full. Two lenders that meet these conditions: Imperial Savings of San Diego (bank-card rate: 17 percent) and Bank of Baltimore (18.96 percent). The Dreyfus Consumer Bank in East Orange, N.J., offers a Gold Mastercard at 16.9 percent with a $25 annual fee.
PSFS (the Philadelphia Savings Fund Society) offers a variable-rate bank card tied to changes in six-month Treasury bills. Recent rate: 17.85 percent, down from 18.41 on Jan. 1. Bank-card expert Spencer Nilson expects more cards to be variable in the future. Since adjustable rates reduce the lender's risk, you should get these cards initially at a lower interest rate. But the variable card at Provident National Bank in Philadelphia costs 19.8 percent -- so here, too, you have to shop and compare.
Money often can be had more cheaply in the form of a personal loan. Several large banks in the Bank Rate Monitor survey priced two-year unsecured loans at 14.5 to 17 percent. Small banks and credit unions often charge less than the big banks do.
Auto loans are usually cheaper than other forms of consumer lending. They've recently come down a bit at many banks -- although, on average, they're higher now than they were a year ago.
But the cost can vary tremendously in any city. Consumer Action of San Francisco reported that, in August, fixed-rate, four-year car loans at 41 lenders varied from a low of 13.4 percent at Mitsubishi Bank to more than 17 percent at Crocker Bank. So you can save quite a bit of money, if you have the patience to make some phone calls.
Consumer Action also found that some lenders are starting to charge up-front fees on auto loans, in the area of $20 to $100. Under the law, these fees are supposed to be included when the lender quotes the annual percentage rate you'll pay on the loan. But a few have been leaving it out. A small fee won't make much difference to the rate, according to CA's Ken McEldowney, but $100 can have an impact. A loan that appears to cost half a percentage point less may actually cost more than a competing loan, after adding a big up-front fee.
If your lender asks for a "document" or "processing" fee as part of your application, ask specifically whether it has been included in the annual percentage rate you were quoted on your loan. If not, the rate is not as low as it looks.