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The Federal Reserve initiated its first federal funds rate cut in four years on Sept. 18, 2024. It opted for a more aggressive half-percentage-point cut, and people are already feeling the effects. The federal funds rate doesn’t directly influence consumer products, but banks often use it as a benchmark when setting certificate of deposit (CD) and savings account interest rates.

The decision also affects borrowers. Those seeking loans over the next year will find this is much more affordable. People carrying a credit card balance may also notice changes, although these are a little less certain.

The Fed rate cut could affect credit card interest rates

The federal funds rate is the interest rate that banks charge one another to borrow money overnight. The Fed sets this target and adjusts it up or down as a way to manage inflation. Now that inflation has cooled, we’re seeing rate cuts. This usually leads banks to reduce annual percentage rates (APRs) on their banking and loan products, including credit cards.

But there isn’t a direct tie between your credit card’s APR and the federal funds rate. We usually see bank account rates drop at nearly the same magnitude as the federal funds rate. This makes sense: Interest rates on savings accounts and CDs represent money paid to consumers. Reducing these rates means lower expenses for the bank.

Credit card interest, however, represents money flowing to the bank from your pocket. Banks are less inclined to drop these too much. They still use the federal funds rate as a benchmark in determining their prime rate — the interest rate they charge to buyers with the best credit scores.

However, there’s also an APR margin on top of this that applies to all credit card holders and determines your final rate. For example, the prime rate might be 3% and the margin might be 10%, giving you an APR of 13%.

If a bank reduces its prime rate, this might lower your credit card APR slightly. But it may not make the difference you hope. Credit cards’ average APR margin is at an all-time high, according to the Consumer Financial Protection Bureau. It’s currently sitting at 14.3%. This has helped banks rake in billions from consumers.

Some banks might decide to give consumers a break now that the Fed is beginning what’s expected to be a long-lasting cycle of rate cuts. Or they might decide to increase their APR margins further, negating some or all of any prime rate cuts they make.

What consumers with credit card debt can do

More Fed rate cuts are expected through 2025, along with another two quarter-percentage-point cuts likely in November and December. If your credit card issuer lowers your APR, it’ll probably notify you on your monthly billing statement, so keep an eye out for this. If you’re not sure, you can also contact the card issuer directly to ask.

It doesn’t hurt to request a rate decrease even if your issuer doesn’t provide one automatically. It’s often as simple as calling the company and laying out your situation. Highlighting your strong payment history helps, if you have one. Right now, it also might not be a bad idea to bring up the rate cuts and the possibility of finding lower rates elsewhere.

If that doesn’t work, you might want to consider opening a balance transfer card. These cards have a 0% introductory APR, sometimes for more than a year. You’ll pay a one-time balance transfer fee, but then your balance won’t accrue any interest until the APR period ends. Click here to check out some of the best balance transfer card offers, as reviewed by our experts.

Personal loans are another option. This gives you a fixed monthly payment, which some people find helpful in paying off their debt. However, if you plan to go this route, it might be better to wait until 2025. More Fed rate cuts are expected, and this will lower the interest rates on personal loans further.

Consider waiting until mid-2025 before applying for a personal loan or auto loan. But feel free to start comparing some of the best personal loan lenders now so you’re ready to act fast when rates come down.

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