How the Fed Rate Rise Impacts Credit Cards

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Credit Card Applications » Research » Guides » Balance Transfer Cards » How the Fed Rate Rise Impacts Credit Cards

How the Fed Rate Rise Impacts Credit Cards


Updated: January 18, 2018

Fed Rate Rise Impacts Credit Cards

Recently, the Federal Reserve hiked its benchmark rate by a quarter percentage point, as a result, you could see a rise of the interest rates on your credit cards by 0.25%. This was the first hike of the key rate in 2017 and the Fed expects to make two further rate rises this year.

This rise in rates is bad news for those with credit card debt. Here's why: the rise in the key rate means that the prime rate will also rise, and since most credit cards rates are variable and based on the prime rate, the credit card interest rates will go up as well. When the Fed raised the rate in March this year, it took about a month or two for the banks to change the variable APRs on their credit cards. You can expect the same quick reaction with the next rises. Note that banks have no obligation to let their consumers know that credit card interest rates are changing when the Fed announces an interest rate increase. So, you should check to find out if the interest rates on your credit cards are going to change.

What to expect if you have credit card debt?

Most credit cards have variable interest rates which are calculated based on the prime rate. When the banks raise their prime rates, it impacts immediately the consumers' credit cards interest rates. Therefore, if you already have the credit card debt it will only get bigger much faster and it will be harder to pay it off. And since two more raises are coming as well, you should expect the trend of rising interest rates, and your debt along with them, to continue.

What can you do?

A wise decision would be to pay off your credit card debt and never carry a balance thereafter. You can consider trying to refinance or consolidate your debt. You can also find a low-interest rate credit card and transfer the existing card balances to it. There are a lot of credit card offers with 0% intro APR on balance transfers. The cards are typically offered to people with established credit, but consumers with average to good credit can also find a suitable balance transfer offer.

We picked some balance transfer credit card offers and outlined them below. You can choose one of these offers to consolidate your credit card debt, or make your own comparison of the available balance transfer offers to pick the best fit.

Capital One® Quicksilver® Cash Rewards Credit Card

This card is good option for those who have low debt as the 0% intro APR is rather short – 9 months. You should be sure you will be able to pay off the transferred balance by the end of this zero introductory period if you do not want to pay interest. Once the 0% APR promo period ends, an ongoing interest rate will apply. When you transfer a balance to the Quicksilver card, you will have to pay a 3% balance transfer fee. Another good benefit of this credit card is a cash back rewards bonus program. All credit card purchases will earn 1.5% cash back. Plus, you will have an opportunity to earn a one-time bonus of $150 after you spend $500 on purchases within three months of account opening.

Discover it® - 18 Month Balance Transfer Offer

This balance transfer credit card is available to those with average to excellent credit. Plus, it comes with cash back rewards and no annual fee. So, if you are into earning cash back, you may like this offer. The 0% intro APR on balance transfer is not super long, but still impressive. You'll start with 18 months of 0% intro APR on balance transfers (with a 3% balance transfer fee) and six months of 0% intro APR on purchases. Cash back rewards are 1% cash back on all purchases and 5% cash back in rotating categories (up to the quarterly maximum, then 1%). Rotating categories change each quarter and you should enroll each time the category changes to be able to earn the 5% cash back bonus.

Capital One® Savor℠ Cash Rewards Credit Card

This is one more cash back credit card from Capital One that will allow you to transfer balances. The Capital One® Savor℠ Cash Rewards Credit Card is a no annual fee credit card that will give you nine months of 0% intro APR to transfer and to pay off your debt. The balance transfer fee is standard – 3% fee on the amounts transferred within the first nine months. Cash back rewards are split into three rewards categories: dining – 3% cash back, groceries – 2% cash back, and all other purchases will earn 1% cash back. This card would be ideal for someone who dines out a lot and puts all their grocery purchases on a credit card.

Citi Simplicity® Card - No Late Fees Ever

This card will help you to stick to your goal of paying off the transferred balance. No rewards program will tempt you to use this card for purchases and therefore increase the card balance – there're no rewards offered. The card simply gives you 18 months of 0%* intro on purchases and balance transfers, which is almost two years of no interest. The balance transfer fee is 3% of each balance transfer; $5 minimum. That is not much compared to the interest you would pay on your current card. There are no other fees: no annual fee, no penalty fee and no penalty rate. So, in case you are late with a payment, you won't lose your 0% intro APR and won't pay the penalty fee.

Citi® Diamond Preferred® Card– 21 Month Balance Transfer Offer

This card from Citi offers probably the longest 0% intro APR on balance transfers – 21-month 0%* APR on balance transfers. This promo offer starts from the date of the first balance transfer and applies to balance transfers that are completed in first 4 months. The balance transfer is 3% of each balance transfer; $5 minimum. However, there is no annual fee for the card, and you are allowed to choose your own payment due date. Like the Simplicity card, this card has no rewards program and thus, it allows you to focus all your attention on debt repayment rather than accruing new debt.


Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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