Credit Card Interest Rates Start to Sink as Banks Respond to Emergency Fed Actions – The Balance
- March 25, 2020
- By: Greenpath Financial Wellness
Excerpt from The Balance’s article on how the Federal’s Reserve’s interest rate cut could affect your credit card debt.
Featuring Jeremy Lark, Senior Manager of Client Services
The Federal Reserve made its latest rate cut on Sunday, March 15, 2020, bringing its benchmark interest rate (more specifically, the federal funds rate) down 1 percentage point to a 0%-0.25% range to help counter economic disruption caused by the snowballing impacts of COVID-19 across the U.S.
“It took people by surprise because it was really the first big financial policy action by the government against the virus,” explained Richard Grossman, professor and economics department chair for Wesleyan University. “The administration had been saying that the virus was ‘no big deal,’ which was a huge mistake. Once the magnitude of the economic costs began to emerge, the Fed decided it had to act right away.”
What This Means for Credit Card Interest Rates
Most credit card interest rates are variable, which means they are based on the prime rate, a number driven by the federal funds rate. That means when the Fed changes its rate (up or down), banks follow suit and adjust credit card APRs accordingly.
If you’re shopping for a new card, the rates you see advertised are likely to be lower soon—if they aren’t already. If you’re an existing cardholder, watch your monthly statement or online account to see if your APR goes down. Card issuers aren’t required to notify you ahead of time of changes driven by an index, such as the prime rate.
It will likely take 1-2 months for cardholders to see the latest rate changes impact their accounts, according to Jeremy Lark, senior manager of client services for GreenPath Financial Wellness. a nonprofit financial counseling agency.
What This Means for Your Credit Card Debt
If you pay off your credit card(s) in full each month, rate cuts don’t impact you at all. The cost of using your card has not changed. However, if you’re someone who already does or will soon carry a balance, when the Fed cuts its rate and credit card interest rates go down, so will the cost of your debt—but not by much.
“For consumers that carry a large balance and only make minimum payments, this interest reduction will help slightly but it’s not going to be a game changer,” Lark said in an email. “For those with an average amount of credit card debt it might mean a few hundred dollars saved over the course of the debt repayment, but not a big cash flow change.”
Continue here to read the entire article at The Balance.
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Jeremy Lark is dedicated to combating financial strife and stress through financial wellness, education, and technology. Through his work as Senior Manager of Client Services, he has helped GreenPath’s clients find the tools and resources they need to turn their lives around. Jeremy has been with GreenPath for 12 years, and while a born-and-bred Yooper, currently resides in the Detroit area.