The recent interest rate cuts by the Federal Reserve have caused quite a stir. The latest Fed rate cut is the largest single drop in the federal funds rate made in the last two decades. Although these cuts were certainly welcomed by consumers, which should result in lowered interest rates and reduced borrowing costs, you shouldn’t expect to see big savings when it comes to reductions in the interest rates that you have to pay on your credit cards.
Major banks like Bank of America and Wachovia immediately dropped their prime lending rates to 6.5%, 3/4 of a full point lower prior to the Federal Reserve’s cuts. Since about 90% of credit cards employ variable interest rates based on the prime rate (established by the Federal Reserve), this should eventually lower your credit card interest rates. But it won’t happen right away.
The reality is that you aren’t likely to see a major difference in the amount you are paying in finance charges. To put the effect of the lower interest rates into context, a $6,600 credit card balance, for example, will only save slightly more than $4 per month as a result of the rate cuts. It might take a couple billing cycles before you see the changes on your statement as well.
All of that aside, this is probably a good time to be scouting good credit card deals. If you have a fixed rate credit card, take another look at your interest rate to make sure you’re still getting a rate that’s competitive. If not, contact your card issuer and see about getting your interest rate reduced. With the recent Fed cuts, your card issuer just might be willing to trim your interest rate.
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