Credit card rates will stay the same
Credit card rates won't be affected by the Federal Reserve's decision not to reduce bond purchases.
"There is technically no direct connection between tapering and credit card rates," says Moshe Orenbuch, managing director at Credit Suisse.
Interest rates on credit cards are based on a contractual floating index rate, usually the prime rate, which is tied to the federal funds rate. The central bank has said that the federal funds rate, a key benchmark for short-term interest rates, will remain near zero percent until unemployment falls below 6.5 percent or inflation exceeds 2.5 percent.
Lenders typically add a margin to the prime rate, such as 2 percentage points, to determine the annual percentage rate, or APR, on credit cards.
Other factors within a consumer's control also determine credit card APRs. Consumers with higher credit scores and better payment histories will qualify for cards with lower rates, while those with lower scores and spotty payments will get a higher rate.
Of course, credit card rates don't matter if the entire balance is paid off each month, because issuers offer a grace period from the APR. In that case, consumers effectively get a zero percent interest rate.
- By Janna Herron