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The Federal Reserve handed American consumers a New Year's surprise today in the form of a rate cut. While the half-a-point rate cut will immediately revive the stock market it will also drive down interest rates for consumer loans, especially credit cards. Considering that Americans owe $505 billion in bank credit card debt, today's rate cut will slice off $2.5 billion in credit card interest charges for this year. Most banks are expected to lower the prime rate later today or tomorrow to reflect the Federal rate cut. Most credit card APRs are based on the prime rate, which currently stands at 9.50%. Nearly two thirds of the nation's issuers adjust rates monthly so many consumers will see lower credit card interest rates with their February statements. Some consumers may see the lower rates as early as this month. A few issuers use the 5th of the month as a cut-off point in setting rates for the next billing cycle. Even better news is that the Fed may possibly cut rates further next month driving the prime rate down to 8.75%. The dramatic rate reductions in this short time frame should pressure fixed credit card rates down by summer.
EXAMPLES OF HOW SOME BANKS ADJUST CREDIT CARD RATES Citibank Last Business Day of Each Month Chase Last Business Day of Each Month First USA 22nd Day of Each Month Household 4th Thursday of Each Month Wachovia First Day of Each Billing Cycle
