This past Sunday, the Federal Reserve announced a lowering of the target federal funds rate to 0-0.25 percent in an attempt to reduce the coronavirus’ impact on the U.S. economy.
The move marks the second emergency rate cut this month and is the largest in the history of the Fed.
“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” said the Federal Open Market Committee in a statement.
The 2019 rate cuts in summary
The Fed first voted to cut interest rates by 25 basis points at the July 2019 FOMC meeting with the intention of slightly boosting the economy in case of economic downturn.
“[The cut] is intended to ensure against downside risks from weak global growth and trade policy uncertainty; to help offset the effects these factors are currently having on the economy; and to promote a faster return of inflation to our symmetric 2 percent objective,” Powell said at the July 31 meeting.
The chairman originally stated the boost would not mean a series of further rate reductions, yet this changed as the Fed made two additional cuts — 25 basis points, each — following the July 2019 meeting.
What this means for credit cards
The federal funds rate typically affects the prime rate, or the interest rate banks charge customers with the highest credit ratings, which in turn influences credit card interest rates.
As long as you’re paying your balance in full every month, you likely won’t see an impact from the increase or decrease of rates. But if you have credit card debt or are planning a large purchase in the coming weeks, the lowering of rates can make it cheaper to pay off debt.
Pay off debt now, not later
With the Fed rate cut, now is the time to pay off your credit card debt. Consider balance transfer card options that can help you consolidate and pay off your debt within an introductory zero percent APR window.
The no annual fee Capital One® SavorOne® Cash Rewards Credit Card, for example, offers an introductory zero percent APR for 15 months on purchases and balance transfers (15.49 percent to 25.49 percent variable APR thereafter). You can transfer your debt to the SavorOne for a 3 percent balance transfer fee and pay it off over the course of 15 months while not owing anything in interest.
After your debt is paid off, you’ll still find value in the card’s unlimited 3 percent cash back on dining and entertainment, 2 percent at grocery stores and 1 percent on all other purchases.
The bottom line
The Fed’s rate cut may only marginally impact your cards’ interest rates, but it’s still a good idea to jumpstart your debt payoff as soon as possible.
Learn more about how to start budgeting, paying off your debts and choosing the right cards for your lifestyle here.