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Fact Finders: Does the federal interest rate impact your credit card rate?

The Fed indicated today that interest rates will remain steady for now.
Published: Sep. 22, 2021 at 11:03 PM CDT
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SPRINGFIELD, Mo. (KY3) - The Fed indicated today that interest rates will remain steady for now. Tonight, a viewer is asking about this scenario; Aren’t credit cards supposed to lower interest rates when the fed interest rate drops? On this one, we’ll say generally..., YES.

The two are somewhat tied together. So, the interest rate on your card will probably fall when the Federal Reserve cuts interest rates.

The Department Chair of Finance and Business at Missouri State University tells us many credit cards price their interest rate as The Prime Rate plus, a percentage. And that’s why your rate may change.

Just keep in mind, the fed rate is NOT directly tied to your credit card rate.

“A change in the federal funds rate could in fact result in a change in credit card rate,” says MSU professor Jeff Jones. “Now, does that happen instantaneously? Absolutely not. Right, there may be a delay in that. So you know, the federal funds rate, they may announce that the target rate has changed, and it may be a month or more before that credit card interest rate actually ends up changing.”

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 could shop around for another card.

One more thing to know; The Consumer Financial Protection Bureau says a company can typically change your credit card terms for future purchases. But they’re generally required to notify you 45 days in advance.

If you have something you want us to investigate, email us at factfinders@ky3.com.

To report a correction or typo, please email digitalnews@ky3.com

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