CUSO-News---Payments-Report

close

Categories

More Tags

Subscribe to Email Updates

Popular Stories

MAP Network Exchange Launches in partnership with PULSE
What It Means to Have a World Class NPS
FedNow: Changing the Game for Real-Time Payments
What Consumers Should Know About the Credit Card Competition Act
The Top Reasons Why You Should Use a Debit Card
Written by Cyndie Martini
on April 11, 2023

On March 2, 2023, the Federal Reserve (FED) raised interest rates by 0.25. This follows a series of rate increases ranging from 0.25 to 0.75 going back to March 22, 2022, totaling 4.5% in all.

Generally, when the FED is increasing interest rates, it slows down a hot economy. At least from the FED's point of view, a hot economy can be defined as one with a strong jobs market. The current economy is pressuring the FED from a jobs market perspective and inflation. Inflation has been historically high and one of the main drivers of rate increases.

Inflation and the jobs market are both expected to start cooling. For the FED, this can mean a pause in rate hikes. But what do all of these rate hikes mean for credit card holders?

The FED's last 0.25 rate increase tacts on another 0.25% to your variable credit card interest rates at the least. This means if you were paying 15.50% on your credit card, you could expect to pay at least 15.75%. The increase can take one to two billing cycles to filter through.

We say at least because credit card interest rates have several layers. The rate the FED sets is called the federal funds rate and is used in interbank lending. Many loans start with this rate as a base. However, this is far from what the end customer sees as loan and credit card companies will add several percentage points to the FED funds rate.

The prime rate is specific to credit card companies and sits above the FED funds rate. Then the credit card company may add several more percentage points, which is what the end customer finally sees. So if a credit card company is quoting a prime rate of 12%, the real rate is probably 15%.

For credit card holders that are being charged interest, a rising rate environment works against them. More of your payment is going towards interest. A rising rate environment is the least opportune time to hold variable interest-bearing debt.

 

Let Us Know What You Thought about this Post.

Put your Comment Below.

You may also like: