When you’re making a purchase at a store’s checkout counter, you may be invited to sign up for the retailer’s store card and promised an initial discount on what you’re buying, plus future perks.
“Ok, why not?” you think.
Here’s why not: If you ever end up carrying a balance on that card, you could end up paying through the teeth for your purchase.
A new study from Bankrate, which surveyed the interest rates of 108 store cards from leading retailers in early September, found they have reached a record high since Bankrate started tracking them in 2008. The average rate on a store card was 30.45%, up from 24.35% in 2021 and well above the current average for credit cards overall (roughly 21%). The highest APR the study found was 35.99% for cards offered at the Academy Sports + Outdoors, Petco, Burlington, Piercing Pagoda, Good Sam, Big Lots and Michaels.
It also found you’ll be charged 34.99% when you carry a balance at 13 retailers, including Athleta, Banana Republic, Nordstrom, JCPenney, Old Navy, American Eagle, T.J. Maxx, HSN, Walgreens, QVC and Tire Rack.
Here’s one way to think about these kinds of high-rate burdens:
Say you sign up for a retailer’s card the day you make a $1,000 purchase. In exchange, you get a 20% discount. You think you’re saving $200 because you’re only charged $800. But if you carry that $800 balance at an annual rate of 35.99% and you only make minimum monthly payments of $35, you’ll end up owing $570 in interest, and it will take you nearly 3.5 years (40 months) to pay off the purchase in full, according to calculations by Bankrate senior industry analyst Ted Rossman. So what you thought cost you $800 originally actually ends up costing you $1,370.
Or, consider that the interest you’ll pay in that same scenario will wipe out the $200 you “saved” after just nine months of making minimum required payments.
There are other ways that retail cards with sky-high rates can cost you more than you expect: For example, you sign up for a 0% promotional offer in which you’ll get some number of months in which you’re charged no interest. The catch: If you fail to pay off your balance in full before the promotional period ends, you will be charged interest retroactively for each month in that period.
The lowest rate on a retail card that the study found was 10%, on the Amazon Secured Card. The next lowest was 15.49% on the Military Star card.
Bankrate also found that several retailers were still charging rates in line with general credit cards: Costco Anywhere Visa by Citi (20.49%), Bass Pro Shops CLUB (21.12%), IKEA Projekt (21.99%) and IKEA Visa (21.99%).
“The best way to use any credit card is to pay in full each month so that you avoid interest. That’s especially true for retail cards,” said Rossman in a statement. “Don’t fall into a trap and apply for one of these impulsively at the checkout counter. It’s fine to say ‘no’ or ‘not right now’ or ‘I’m going to think about it.’ The retailer may dangle 10% off today’s purchase if you sign up, but that’s not worth it if you’re going to pay a 30% interest rate for years to come.”
Of course, if you never carry a balance, there are some retail cards that could save you money in the end, Rossman noted.
“There are narrow circumstances in which retail cards can work for you. Some stores such as Amazon, Best Buy and Target offer 5% cash back every time you use their card to buy something from them. That’s probably better than you would get with any other card. For a loyal shopper who pays in full and avoids interest, that’s a compelling value proposition,” he said.
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