Falling Interest Rates May Help Credit Card Borrowers

The Federal Reserve meets next week to decide whether to lower interest rates for the second time this year. What could their decision mean for borrowers? The interest rates set by the Fed affect the prime interest rate, used by many credit card companies to set the regular interest rates consumers pay on purchases and balance transfers. If the Fed cuts rates again next week, chances are your credit card interest rates will go down. The Federal Reserve typically makes interest rate adjustments in quarter-point intervals, meaning its target rate would drop from 4.75% to 4.5% and the prime rate will drop from 7.75% to 7.5%.

Credit card interest rates typically range between four and ten points higher than the prime interest rate. If your variable credit card interest rate is prime plus six, for example, your interest rate will drop from 13.75% to 13.5%.

Credit cards with fixed interest rates will not be affected by prime rate adjustments. You can determine which kind of rate you have by referencing the terms and conditions that are mailed with your credit card.