Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, November 17, 1994 TAG: 9411170111
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
But fear of higher credit costs likely won't deter them from sidling up to the checkout counter with plastic in hand. Because there are so many new low-rate credit cards out there, many shoppers feel they can easily afford to charge Dad's camcorder and the kids' toys.
``Christmas is Christmas,'' said J. Lee Boucher, 59, a small-business owner in Easton, Pa. ``People will spend if they feel comfortable about their jobs, and I think they feel that right now.''
Credit-card usage has skyrocketed already this year because consumers are more confident about the economy and their finances. During the first nine months of the year, consumers charged $347 billion on their bank cards, a 26 percent increase over the same period last year, according to RAM Research Corp., a Frederick, Md.-based firm that tracks credit-card trends.
The Federal Reserve Board's decision Tuesday to raise two key short-term interest rates will mean that consumers will pay more interest on their card borrowings, but experts said the increases are small and won't dent card usage.
The average cardholder with a $1,700 balance on a Visa or MasterCard will pay an extra $13 next year because of Tuesday's Fed rate increase, the sixth one this year.
Taking into account the other five rate increases, cardholders will pay $43 more in interest charges next year than they would have if the Fed hadn't raised rates.
The Fed raised the benchmark rate banks charge each other on overnight loans from 4.75 percent to 5.50 percent and increased the discount rate - the interest it charges to make direct loans to banks - by 0.75 percentage point as well, to 4.75 percent.
Most banks responded by pushing their prime lending rates from 7.75 percent to 8.5 percent, the highest level for this benchmark rate since early 1991.
Nearly 200 million of the 340 million Visa and MasterCards in circulation have rates that are linked to the prime bank rate.
But consumers have some important advantages going for them.
Competition has forced many companies to offer low-rate cards or higher credit limits to entice customers to switch to a new card. Even though the prime rate has increased by 1.75 percentage points since February, the average annual percentage rate on credit cards has risen less than 1 percentage point, to 16.38 percent. RAM Research estimates that consumers will rack up another $150 billion in charges this Christmas, making 1994 a record year for the credit-card business.
``People are not anywhere near as rate-sensitive as conventional wisdom would suggest,'' said David Orr, chief economist at First Union Corp. of Charlotte, N.C.
by CNB