Does the Federal Interest Rate Affect Your Credit Card Rate?
SPRINGFIELD, Mo. (KY3) – The Fed today indicated that interest rates will remain stable for now. Tonight, a viewer wonders about this scenario; Aren’t credit cards supposed to lower interest rates when the Fed’s interest rate drops? On this one we will usually say …, YES.
The two are a bit related. So the interest rate on your card will likely drop when the Federal Reserve lowers the interest rates.
The director of the Department of Finance and Business at Missouri State University tells us that many credit cards rate their interest rates like the Preferential rate more, a percentage. And that’s why your rate may change.
Remember, the Fed rate is NOT directly tied to your credit card rate.
“A change in the federal funds rate could actually cause a change in the credit card rate,” says MSU professor Jeff Jones. “Now is that happening instantly?” Absolutely not. Okay, there may be a delay. So, you know, the federal funds rate, they can announce that the target rate has changed, and it can be a month or more before the interest rate on the credit card actually changes.
Jones has some advice. Read the terms on your credit card. If you don’t like the way your card company handles interest rates, you can contact them. Or you can shop for another card.
One more thing to know; The Consumer Financial Protection Bureau says a business can usually change the terms of your credit card for future purchases. But they are usually required to notify you 45 days in advance.
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