updated 12/17/2008 6:35:36 PM ET 2008-12-17T23:35:36

Just because the Federal Reserve is cutting interest rates, don't expect your credit card company to necessarily do the same.

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Card issuers are likely to remain stingy about who will receive better rates — so relief from heavy credit-card debt may not be a gift many will receive this holiday season.

"The prime rate drop is probably a small dose of good news for cardholders," Ben Woolsey, director of marketing and consumer research at CreditCards.com, said Wednesday after the Fed slashed the federal-funds rate to historic lows. "It should bring down rates a little bit for some people."

But numerous experts say the overall impact on credit card rates will be very limited.

"Not many cardholders are going to see significant cuts," said Greg McBride, senior financial analyst at Bankrate.com.

If ever there were a time for a giant serving of good news, this is it. Consumers coping with a recession and stock market plunge also are struggling under a large debt load, and the holidays will only add to the burden. The National Retail Federation forecast this fall that consumers would spend some $470 billion during the holiday season, with polling showing that close to a third of that was expected to be on credit.

The Fed's cut is hardly a rock in Americans' Christmas stockings. The lowering of the prime interest rate — which typically moves in tandem with cuts by the Fed in the federal funds rate — should soon trigger lower rates for home and car loans. The intent is to stimulate the flow of more cash into the economy, which could ultimately help reverse the downturn.

But credit card rates tend to be less responsive to changes in market interest rates than rates for auto loans or home mortgages, according to Bill Hampel, chief economist for the Credit Union National Association, because more is left to the issuers' discretion.

One reason is the increased presence of "floor" rates in the fine print of card agreements — pre-determined points below which issuers won't let the rate drop, regardless how low prime rate falls. For example, if a card's rate is based on the prime plus 5 percent, with a designated floor of 10 percent, the rate on that card would not fall below 10 percent, even after the prime rate fell below 5 percent.

Also, according to McBride, card issuers have become much stingier about who benefits and gets the lower rates. Increasingly, that is confined to cardholders with strong credit and low balances, not the cardholders carrying large balances and struggling to keep their heads above water.

"If you're carrying a balance large enough that yesterday's interest rate cut would make a (noticeable) difference, you're probably not getting the lower rate," he said.

Most variable-rate credit cards are tied to the prime rate and — unless they have a floor rate — will see their rates drop 0.75 percent, matching the decline in the prime. Fixed-rate cards won't see a rate decline because of the Fed cut.

Rate reductions typically would take effect either in the next billing cycle or the next quarter, depending on the issuer. But the benefit won't be startlingly evident. Applying a 0.75 percent decline in interest rate to a card with a revolving balance of $5,000 would result in interest savings of only $38 a year, McBride noted.

Unfortunately, credit card issuers are expected to raise their interest rates slightly next year as unemployment increases and delinquencies rise. As a protective measure to stem losses, banks may also continue to decrease credit lines.

Major card issuers had little to say in the wake of the Fed's rate cut other than noting that some holders of variable-rate cards should benefit from lower rates soon.

Mike Jones, 43, of Trophy Club, Texas, says it's not the interest rates that get consumers in trouble. Jones, who has worked as a volunteer counselor to help people in financial trouble, says it's the habit of buying what they want on credit even when it's beyond their means.

"In every case the interest rate had very little to do with the predicament people are in," said the software engineer, who pays off the balance on his credit card every month. "People finally get fed up and change their behavior and stop spending more than they make. That has a bigger impact on their finances than the interest rate."

Tough restrictions on credit card issuers being voted on Thursday by the Fed are expected to have far greater significance for cardholders than the rate cut. Among the proposed regulations is one that would prohibit banks from raising interest rates on existing card balances as long as a customer doesn't fall more than 30 days behind on payments.

The restrictions are "great news on the face of it for consumers," said Woolsey. However, he added, "the dark lining in the cloud is it's ultimately going to make credit less available and more expensive simply because it's going to make it less profitable for banks to engage in credit card lending."

The companies that issue the cards have a similar view. American Bankers Association spokesman Peter Garuccio said that while the regulations' full impact remains to be seen, "we have raised concerns that it could lead to increased prices across the board and less credit availability."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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Data: Latest rates in the US

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Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
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Source: Bankrate.com