NATIONWIDE -- I was just wandering if anyone knows of any card issuing companies who offer LIBOR rate based credit cards instead of "prime + spread" interest rate as LIBOR rates are much lower and a better deal. Capital One is the only bank I know of that offers them.
Explanation of LIBOR for those who are unfamiliar with the term.
LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or "interbank") money market. The LIBOR rate is the British equivalent to the Prime Rate of the US but is generally lower because of the value of the Eurodollar in relation to the American dollar. The advantage to LIBOR rates is that LIBOR rates change in small increments like the T-Bill rate in America while the prime rate index tends to move more sporadically and in larger increments. LIBOR usually tracks the Federal Funds and 6-month CD rates.
The margins on LIBOR based loans are usually much smaller then prime rate based loans. You should be able to find a LIBOR-based adjustable rate loan/credit card with a margin as low as two percent. The margin is the amount added to the index in order to determine the interest rate. In this case, if my Capital One calculated interest rate, per my cardholder agreement, is LIBOR + 4 then my interest rate for the month will be 7.47% when my account bills today. (Today’s LIBOR rate = 3.47) + 4 = 7.47% and this is referred to as the “fully indexed” rate.
A fully indexed rate is not discounted, as the LIBOR index increases or decreases daily, so the applicable LIBOR rate will be the effective LIBOR rate on the statement billing date. Example: May 28, 2006 billing date, the LIBOR index is 2.98% therefore your fully indexed interest rate for the statement date will be 2.98 + 4 = 6.98%. You can see how you can save a lot of money each month, if you carry a large balance, by having a LIBOR based credit card instead of a “prime +” credit card. Most “prime +” credit cards have spreads of 9-18 points so the interest rate on your “prime +” credit card balance will be in the range of 14% to 25% as opposed to 6.98% on your LIBOR based credit card.
Historically, over the last fifteen years, the LIBOR index has averaged 4.87 percent. The only year the LIBOR rate ever increased by more than one percent was in 1994. LIBOR is a slow moving index so a LIBOR based rate credit card is not likely to spike up dramatically overnight.
LIBOR based credit cards are definitely the way to go because the consumer can reap the benefits of paying less interest, paying down principal quicker and not lining the pockets of money hungry banks like Chase, Bank of America and Wells Fargo.
Fleet Bank offered a LIBOR based credit card about two years ago because I remember receiving a pre-approved offer in the mail. I am not sure if Fleet Bank is still around or if they have been acquired by another bank. I will research and advise or if anyone knows if Fleet is still around, then please post.