federal reserve

7 ways the Fed's decisions on interest rates affect you

Fed affects credit card rates
Putting credit card rates in motion | Jacob Lund/Shutterstock.com

Fed affects credit card rates

Most credit cards charge variable interest rates tied to the prime rate, which is about 3 percentage points above the federal funds rate. When the federal funds rate changes, the prime rate does as well, and credit card rates follow suit.

"What the Federal Reserve does normally affects short-term interest rates, so that affects the rates that people pay on credit cards," PNC Financial's Faucher says.

When the Fed sends credit card rates higher, it costs more to borrow. So people tend to borrow less, and buy less. That slows the economy and puts the brakes on inflation.

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