Fed Lowers Interest RatesSo, now that Bernanke has shown that he reacts in a similar fashion to Greenspan and lowered rates, the typical consumer is now wondering how this rte cut affect them.

Essentially we should all see a benefit to lending rates but how will it affect your credit card rates? Well, luckily for most of us banks tend to hedge against interest rate increases by pegging their APR to the prime rate thus increasing the APR as the Fed increases rates. However, not surprisingly, they are not quick to decrease rates.

The first thing you need to do is figure out whether you have a fixed or variable rate credit card. Fixed rate cards will not change but variable rates are tied to the prime rate (something like Prime + 7.9%). But the change to your variable rate won’t be instantaneous. Read you fine print. Issuers have a grace period where they are required to react to interest rate changes and can charge the highest rate over a period typically anywhere between 30 to 60 days.

  • Issuers screw us by immediately increasing our credit card APR when the prime rate increases and we will feel the pinch within days
  • When the rate falls, as in this case, expect to see your variable rate APR affected towards the end of the grace period or around 45 days.

Don’t be shocked pricing tactics that almost amount to a form of arbitrage are common practice for banks. Unfortunately, interest rates are something that consumers have very little direct impact on. But try and minimize the hurt by paying off balances whenever possible. The finance charge hole is one that is very difficult to dig out of and can catch you off guard during rainy times. Save a good balance transfer option for these times.

Share This


Tags: , , , ,