What the Fed will cost you If you have a variable rate card, your rate is determined by a formula tied to the prime rate, which is the rate at which banks lend to their most creditworthy customers. The prime rate tends to move up when the Fed funds rate does. That doesn't mean your credit card rate will right away. Assuming the Fed hikes rates on Tuesday, some cardholders may see an increase in rates as early as their October billing cycle, said Robert McKinley, founder of CardWeb.com, in an email exchange.
A 25-basis-point hike will translate to a 25.5 basis point hike in card rates due to daily compounding. That's an extra $25.50 a year in interest assuming a constant $10,000 balance. (If you count the first two quarter-point hikes this year, which also added $51 to your bill, you may end up paying an extra $76.50 a year in interest.) Those with fixed-rate cards - which account for nearly 60 percent of all cards -- shouldn't be fooled by the word "fixed." Issuers can change the rate or switch the structure from fixed to variable so long as they give at least 15 days notice. "Issuers may wait till Jan. 1 to switch back to variable rates ... . This could change if rates were pushed up 50 basis points (on Tuesday). In that case, you may see major changes beginning in October." So pay attention to any notices you may get (or already have gotten) from your credit card company. |
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