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Here’s How Fast Your Credit Card APR Will Change When the Fed Hikes or Cuts Rates

Here’s How Fast Your Credit Card APR Will Change When the Fed Hikes or Cuts Rates

*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Mar 15, 2020. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

A significant interest rate reduction is coming for most American credit cardholders, thanks to the Federal Reserve.

On Sunday, for the second time in 12 days, the Fed announced it would reduce its benchmark interest rate, called the federal funds rate, in order to combat the economic impact of the coronavirus outbreak.

The latest move lowered rates by 1 full percentage point and follows on the heels of the Fed’s March 3 move to lower rates by half of a percentage point.

When the federal funds rate is lowered, it means that your credit card’s APR is almost certain to follow suit. A reduction of one percentage point, for example, means that if your current card’s APR is 18 percent, your rate will likely decrease to 17 percent.

How quickly will it impact you? How soon will the bank start charging you that new interest rate?

The short answer: Quickly.

Exactly how fast depends on the card issuer and its policies. Unfortunately, those policies aren’t always easy to find — and when you do find them, they probably won’t be very easy to understand.

Most likely, you’ll see a rate change within one or two billing cycles, according to our own review of several major credit card issuer policies.

Here’s what you need to know…

The exception to the rule

A decade ago, credit card issuers could change your card’s interest rate for any number of reasons, and they could do it in a hurry. They could even do it if you were late with a payment on a different account.

That practice was called universal default, and it was awful. Imagine missing a payment on one credit card and having all your other accounts’ APRs jump. That was a real possibility 10 years ago. The Credit CARD Act of 2009 changed that. In most cases, issuers now must give at least 45 days’ notice before increasing a cardholder’s interest rate.

One of the few exceptions? A Fed rate change.

The vast majority of U.S. credit cards today are so-called variable-rate credit cards, meaning that their APRs can change with Fed rate changes. Most of those cards’ APRs are based on the prime rate, which is based on the Federal Reserve’s federal funds rate. That’s the rate that the Fed has been increasing in recent years. When the federal funds rate goes up, the prime rate goes up by the same amount, which drives variable-rate credit cards up by the same amount as well.  And your card issuer doesn’t have to give you 45 days’ notice when that happens.

The same pattern applies to a rate reduction. When the fed funds rate falls, so does the prime rate and then variable-rate cards rates follow shortly thereafter.

Want to know how your APR will change? Pick up the phone

No one likes reading through credit card terms and conditions or cardholder agreements. They’re dense. They’re often written in near-incomprehensible legalese. The font size is microscopic. It is just no fun. Unfortunately, however, that’s where a ton of key information is to be found.

There is a shortcut, though. If you’re curious about when your rate will change, call your issuer and ask. You won’t be the first. And if you’re still unclear on the answer that you are given, escalate it. Ask to speak to a manager and don’t end the call until you’re clear on what you’ve heard.

Above all, don’t give up. It may be challenging, but chances are that it will still be easier than deciphering the information that’s available online.

Issuer policies can vary widely, be hard to find

When it comes to changing interest rates, issuer policies are like snowflakes — none is exactly like another.

We sorted through major credit card issuers’ websites to see what the issuers’ policies are for implementing Fed rate hikes. They weren’t always easy to find. For many banks, you could find this information by clicking on “terms and conditions” or another similar link on a credit card’s information page before you applied for the card. For others, including Chase and Citi, it required diving into the full cardholder agreement.

When we did find them, they were often convoluted and hard to understand. For example, here’s what we found from Chase.

“We calculate variable APRs by adding a margin to the highest U.S. Prime Rate published in the Money Rates section of The Wall Street Journal two business days (not weekends or federal holidays) before the closing date shown on your billing statement. The APR may increase or decrease each month if the Prime Rate changes. Any new rate will be applied as of the first day of your billing cycle during which the Prime Rate has changed. If the APR increases, you will pay a higher interest charge and may pay a higher minimum payment.”

Confusing, right? Unfortunately, it’s fairly typical of the information that issuers provide about this.

Basically what that’s saying is that how quickly your rate will change depends on, among other things, when the Fed’s rate move happens in relation to the closing date on your monthly credit card statement. If the announcement happens well before your closing date, you could end up seeing your APR change more quickly. If the announcement happens shortly before your closing date, it may take an extra billing cycle to take effect.

The bottom line

So what does this all mean? It means that as a result of this latest move, you can expect to see your card’s APR reduced within the next billing cycle or two. It also means that if you want a more specific answer than that — like an exact date for how much your rate will change — you should probably pick up the phone and ask your issuer directly.

Of course, you don’t have to wait for the bank to lower your rates, though. Consider calling your card issuer to ask for a lower rate. Your chances of success are likely far bigger than you realize.

Better yet, pay your balance in full so that you don’t have to worry about your interest rates. It’s easier said than done, and it’s not always possible, but it’s really the best move that you can make.

Tip: Check out our list of the cards with the longest 0% intro APR offers.


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