Fed cuts interest rates for first time in 4 years — how will it affect your credit cards?
Editor's Note
Relief is on the horizon for those battling high interest rates. On Wednesday, the Federal Reserve cut interest rates for the first time since March 2020, when the economy stalled due to the spread of the COVID-19 pandemic.
So, you may wonder how this 0.5 percentage point reduction will affect your credit card balances and payments.
We frequently get a question: What is the difference between the interest rate and the annual percentage rate? Are credit card APRs and interest rates the same thing?
Let's look at how the Federal Reserve interest rate affects your finances.
How does the Federal Reserve interest rate affect my credit card?
When the Federal Reserve adjusts its interest rates, credit card APRs will also change — albeit gradually. While a Fed rate cut will lead to lower APRs for those carrying balances, the immediate impact will be minimal.
Rather, the real advantages may unfold gradually over time due to the cumulative effect of multiple rate cuts expected through 2025.
In the meantime, consumers should take proactive steps to take control of their finances, including:
- Prioritizing paying off high-interest balances
- Consolidating debt with a balance transfer card
- Opening a 0% APR credit card for new purchases
- Exploring a personal loan with lower rates than credit cards
- Shopping around for competitive rates
What's the difference between interest rate and APR?
With some financial products, the interest rate and the APR are different. With credit cards, though, they're basically the same.
The Truth in Lending Act requires all consumer lenders to state their interest rates as APRs. APR is considered the "real" annual cost of borrowing money, including fees and other charges in addition to the interest rate.
If you take out a mortgage, for example, you'll pay an origination fee and other charges upfront; these then get factored into the APR on your mortgage. So, a mortgage with an interest rate of, say, 5.5% might actually cost you something like 5.8% a year. Credit cards don't do that, meaning the APR on your card is precisely equal to your interest rate.
Is APR the same as the interest rate?
Yes, the APR is essentially the same as the interest rate for credit cards. However, the APR may be higher than the interest rate for other interest-accruing products like mortgages and car loans. That is because there are often fees and charges incorporated into the APR on these products.
Related: What is a good APR for a credit card?
Does the Federal Reserve's interest rate affect credit card APR?
Yes, since most credit card APRs are variable and are adjusted based on market conditions.
In short, the Federal Reserve sets interest rates — known as the federal funds rate — that banks use to lend money to one another (or to borrow directly from the Federal Reserve). Then, there's the prime rate, which is generally 3 percentage points higher than the federal funds rate. Banks use this as a starting point when they lend to consumers, and it tends to change in line with the federal funds rate.
From there, banks add additional markups based on the type of loan (home equity, car, mortgage, credit card, etc.) and the borrower's creditworthiness. Since credit cards require the least underwriting and have the largest capacity for overspending — you can't just take a car loan and purchase a bunch of electronics or a pricey vacation — they typically have the highest risk and thus the biggest markup.
As a result, your current credit card's APR is essentially the current prime rate plus a markup set by your bank. As the federal fund rate (and thus the prime rate) decreases, your APR decreases as well.
Bottom line
The APR and interest rate on credit cards are the same. Annual fees or charges on things like balance transfers, cash advances and late payments are not included in the APR because credit card companies can't predict which cardholders will incur which fees.
Of course, you can avoid paying credit card APR altogether by paying your balance on time and in full, one of TPG's 10 commandments of credit card rewards.
If you're working on paying down your debt, a 0% APR card can help reduce your borrowing costs.
TPG featured card
at American Express's secure site
Terms & restrictions apply. See rates & fees.
| 3X | Earn 3X Miles on Delta purchases. |
| 1X | Earn 1X Miles on all other eligible purchases. |
Pros
- Delta SkyClub access when flying Delta
- Annual companion ticket for travel on Delta (upon renewal)
- Ability to earn MQDs through spending
- Various statement credits for eligible purchases
Cons
- Steep annual fee of $650
- Other Delta cobranded cards offer superior earning categories
- Earn 100,000 Bonus Miles after you spend $6,000 or more in purchases with your new Card within the first 6 months of Card Membership and an additional 25,000 bonus miles after you make an additional $3,000 in purchases on the Card within your first 6 months, starting from the date that your account is opened. Offer Ends 04/01/2026.
- Delta SkyMiles® Reserve American Express Card Members receive 15 Visits per Medallion® Year to the Delta Sky Club® when flying Delta and can unlock an unlimited number of Visits after spending $75,000 in purchases on your Card in a calendar year. Plus, you’ll receive four One-Time Guest Passes each Medallion Year so you can share the experience with family and friends when traveling Delta together.
- Enjoy complimentary access to The Centurion® Lounge in the U.S. and select international locations (as set forth on the Centurion Lounge Website), Sidecar by The Centurion® Lounge in the U.S. (see the Centurion Lounge Website for more information on Sidecar by The Centurion® Lounge availability), and Escape Lounges when flying on a Delta flight booked with the Delta SkyMiles® Reserve American Express Card. § To access Sidecar by The Centurion® Lounge, Card Members must arrive within 90 minutes of their departing flight (including layovers). To access The Centurion® Lounge, Card Members must arrive within 3 hours of their departing flight. Effective July 8, 2026, during a layover, Card Members must arrive within 5 hours of the connecting flight.
- Receive $2,500 Medallion® Qualification Dollars with MQD Headstart each Medallion Qualification Year and earn $1 MQD for each $10 in purchases on your Delta SkyMiles® Reserve American Express Card with MQD Boost to get closer to Status next Medallion Year.
- Enjoy a Companion Certificate on a Delta First, Delta Comfort, or Delta Main round-trip flight to select destinations each year after renewal of your Card. The Companion Certificate requires payment of government-imposed taxes and fees of between $22 and $250 (for itineraries with up to four flight segments). Baggage charges and other restrictions apply. Delta Basic experiences are not eligible for this benefit.
- $240 Resy Credit: When you use your Delta SkyMiles® Reserve American Express Card for eligible purchases with U.S. Resy restaurants, you can earn up to $20 each month in statement credits. Enrollment required.
- $120 Rideshare Credit: Earn up to $10 back in statement credits each month after you use your Delta SkyMiles® Reserve American Express Card to pay for U.S. rideshare purchases with select providers. Enrollment required.
- Delta SkyMiles® Reserve American Express Card Members get 15% off when using miles to book Award Travel on Delta flights through delta.com and the Fly Delta app. Discount not applicable to partner-operated flights or to taxes and fees.
- With your Delta SkyMiles® Reserve American Express Card, receive upgrade priority over others with the same Medallion tier, product and fare experience purchased, and Million Miler milestone when you fly with Delta.
- Earn 3X Miles on Delta purchases and earn 1X Miles on all other eligible purchases.
- No Foreign Transaction Fees. Enjoy international travel without additional fees on purchases made abroad.
- $650 Annual Fee.
- Apply with confidence. Know if you're approved for a Card with no impact to your credit score. If you're approved and you choose to accept this Card, your credit score may be impacted.
- Terms Apply.
- See Rates & Fees