Whenever the Federal Reserve cuts interest rates, you’ll see lots of media stories about how this means lower borrowing rates for consumers. Have you ever noticed that those promised lower rates don’t always materialize?
While Fed rate cuts do have some influence on the rates consumers pay, it’s an oversimplification to say that the Federal Reserve cutting rates automatically means consumers will get the same reduction on their credit cards.
There are other factors in play. These can water down the benefit you get from Fed rate cuts.
The good news is that these other factors mean there are other ways to lower your credit card rates. In fact, why wait for the Fed? Since Fed rate cuts are uncertain and don’t happen that often, you can make your own moves to reduce the interest you pay.
Will your credit card rate fall now that the Fed has cut rates?
In September of 2025, the Federal Reserve cut the Fed funds rate by 0.25%. What does that mean to you?
If you think it means it’s going to cost less for you to use your credit cards, you may be disappointed.
Fed rate cuts don’t always mean credit card rates will fall. For example, in the second half of 2024, the Fed made three rate cuts for a total of 1.00%. However, the CardRatings Credit Card Rate Survey found that the average credit card rate fell by just 0.23% over that same period.
When the Fed cuts rates, chances are that consumers will see some benefit. However, the rate reduction consumers see may be less than the amount of the Fed rate cuts.
Also, not all credit cards will experience the same benefit from a Fed rate cut. Not only that, but different customers with the same credit card may be affected differently when the Fed cuts rates.
Are there more rate cuts to come?
Even if consumers got the full benefit of the Fed’s latest rate cut, it’s not much to get excited about. After all, with the average credit card rate well above 20%, a 0.25% rate cut doesn’t exactly make borrowing cheap.
The bigger hope for consumers is that the September 2025 rate cut was just the first in a series of rate cuts. Except during emergencies, the Fed generally prefers to make a series of small rate changes rather than a big change all at once. That way, they can wait to see the impact before they make any further changes.
At the September meeting, the Fed released updated economic projections for the next few years. These suggest that the Fed expects to cut rates by another 0.50% by the end of this year, and then by another 0.50% over the next two years.
So, if all goes according to plan, the Fed funds rate would be a full 1% lower by the end of 2027. However, these plans are far from certain. They depend on inflation starting to moderate. Inflation has been stubborn in recent months, and with the impact of tariffs still unknown, it could flare up again. This would make the Fed more hesitant to cut rates.
In short, the outlook now is for consumers to get more help from the Fed. However, those future rate cuts are not a sure thing. Also, the rates consumers pay on their credit card balances may not get the full benefit of any Fed rate cuts. After all, credit card rates are not directly based on the Fed funds rate.
Fed funds rate vs. prime rate
As noted, the Federal Reserve cutting interest rates hasn’t always led to credit cards getting the same benefit. One reason is that credit card rates aren’t directly based on the Fed funds rate.
Ninety percent of credit cards base their rate in part on the bank’s prime lending rate. This is the average rate that banks charge their best customers for borrowing money. The bank prime rate is different from the Fed funds rate. At the end of September 2025, the bank prime rate was 7.25%. At the same time, the Fed funds rate was 4.09%.
While the bank prime rate generally moves along with the Fed funds rate, the changes are not exactly the same. The gap between the prime rate and the Fed funds rate is currently over 3%, but this has varied over time. It has often been significantly smaller. There have even been brief periods when the Fed funds rate has exceeded the prime rate.
Even when the prime rate changes, you might not see the same change in your credit card rate. Ten percent of credit cards don’t base their interest rate on the prime rate. Even those that do only base their rates partly on the prime rate.
Again, the bank prime rate was 7.25% at the end of September. No matter how good your credit score is, your credit card rate isn’t going to be anywhere near 7.25%.
➤ SEE MORE:How does the Federal Reserve impact credit card interest?
What else affects your credit card rate?
As you’ve probably noted, your credit card rates are very different from the Fed funds rate or the prime rate. When those rates are cut, you don’t always see the same impact on the rates you pay. So, what else is going on?
Two other things have a huge impact on the rates consumers pay on credit cards: credit conditions and the competitive environment.
Credit conditions
Credit cards let people borrow money on demand. One of the risks involved with lending money is that some people may not be able to pay back what they owe.
This risk is higher at some times than at others. Credit risk increases when the economy (and especially the job market) weakens, and when people are overextended from borrowing too much.
When credit risk rises, credit card companies are inclined to charge higher interest rates. The extra interest they earn helps make up for the customers who don’t pay their bills.
Credit conditions complicate the relationship between Fed rates and credit card rates in two ways:
- If credit conditions are worsening, credit card companies may want to keep interest rates high. Often, the Fed cuts rates when the economy is weakening. However, those may be the same times when credit conditions are getting worse. So, credit card rates may not fall as quickly as the Fed funds rate.
- Credit risk varies depending on the customer. If your credit score drops, credit card companies will view you as a riskier customer. So, even if the Fed is cutting rates, if your credit score is falling you may not see your credit card rate drop. You might even see it rise.
Competitive environment
Every credit card company is a different business. They have different overhead costs, advertise differently, and aim for different profit margins.
These differences influence the interest rates they charge. This is why credit card companies may charge different rates, even for customers with the same risk profile. So again, the Federal Reserve cutting rates is not the only thing that affects credit card rates.
Why wait for the Fed? Try these things to lower your credit card rate
For all the attention given to the Federal Reserve, it does not have direct control over credit card rates. And, because the Fed needs to respond to economic conditions, it is never a sure thing that the Fed is going to cut rates.
You don’t have to wait for the next Fed rate cut to lower your credit card rate. Taking direct action now can help you secure a better rate. Here are some ways you can do it:
- Shop around. The latest CardRatings Credit Card Rate Survey found that rates offered by credit card companies ranged from a low of 16.99% to a high of 30.74%. With such a wide range of credit card rates, you may be able to find a better one by shopping around.
- Work on your credit. Since credit card companies charge higher rates to riskier customers, you can save a lot by improving your credit score. The average difference between the highest and lowest rates offered by credit cards was more than 8%. A better credit score could put you toward the lower end of that range.
- Reduce your credit card balance. Even for people with excellent credit, high credit card rates make it an expensive way to borrow. The best way to pay less interest is to pay your balance off in full each month.
The Fed may get all the publicity for its rate moves, but there are things you can do that can have even more impact on your credit card interest costs.
