The Federal Reserve is keeping federal interest rates steady. After the latest Federal Open Market Committee (FOMC) session on March 19, 2025, the target federal funds rate range remains paused at 4.25%-4.50%.
The Fed’s interest rate moves affect many types of debt — including personal loans, home equity, student loans, and more. Credit card balances and the interest rates they carry are no exception. But while ongoing rate cuts could lead to minor drops in credit card interest rates, cardholders should still expect APRs to remain high for the foreseeable future.
Here’s more information about the central bank’s latest decision and how interest rate movements can affect your credit card balances.
The Federal Reserve is the central bank of the United States. It sets monetary policy partially by adjusting the federal funds target rate range. Starting in March 2022, the Fed increased this range several times, aiming to bring down high inflation rates. After peaking at a more than 20-year high of 5.25%-5.50%, the Fed began cutting rates in September 2024. In December, the range hit 4.25%-4.50%, where it’s remained paused through 2025 so far.
But what does this have to do with your credit cards? While the target range set by the Fed doesn’t directly change your credit card APR (annual percentage rate), it does play a significant role.
Here’s a breakdown of how the process works, from the Fed’s target rate range to the prime rate determined by banks to your credit card’s APR:
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Federal funds rate: This is the interest rate that banks charge each other for short-term loans. The Fed sets a target range for this rate at its Federal Open Market Committee (FOMC) meetings. Most recently, the Fed kept this range to a 4.25%-4.50% target.
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Prime rate: This is a benchmark rate for lending products offered by banks. The Fed doesn’t directly set the prime rate, but it’s based on (and tends to move alongside) the federal funds rate.
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Credit card interest rates: Lenders determine a variable rate range for credit cards using the prime rate, plus an added margin. Your interest rate will fall within this range based on various factors, like your credit score, as determined by your credit card issuer.
In summary: The Fed sets a target federal funds rate range, which banks use to determine their prime rate. Issuers then add percentage points on top of the prime rate to determine your credit card’s rate range.
You’re not alone if you pay more toward your credit cards now than you did a few years ago. The amount of high-interest debt Americans owe is growing.
After exceeding $1 trillion in 2023, credit card debt balances grew to $1.21 trillion in the fourth quarter of 2024, according to the Quarterly Report on Household Debt and Credit from the New York Fed. At the same time, credit card delinquencies are also rising, with more than 7% of card accounts transitioning into “serious delinquency” of 90 days or more.
Related: How to pay off credit card debt when your budget’s tight
Credit cards carry variable APRs that change with the prime rate, a big reason why the Fed’s interest rate moves can impact credit cardholders. But that’s not the only factor that goes into your assigned credit card APR — which is why you shouldn’t expect the amount you’re charged to drastically change alongside Fed rate cuts.
When the Fed raised interest rates from near-zero to more than 5% starting in March 2022, APRs set by credit card issuers increased. After remaining relatively stable between 14% and 16% in the years prior, average credit card interest rates skyrocketed to today’s average of 21.76%. Those who carry interest on their credit cards pay even more, at 23.37% on average.
At the same time, you shouldn’t stop paying down debts following the Fed’s rate cuts last fall and current pause. Even if your credit card APR moved in sync with the Fed’s moves, it would still leave you with very high interest charges.
Between September and December 2024, the Fed only moved its rate range down by one percentage point. Moving from a 20% APR to a 19% APR on your credit card could save you some money as you pay down your balance. But credit card debt accrues very quickly and making only minimum payments at that APR would still leave you with expensive, mounting balances.
Even if the Fed lowers rates later in 2025, don’t expect big changes to your credit card interest rate. Carrying a credit card balance with a double-digit APR is one of the quickest ways to accrue lasting high-interest debt.
Here are some ways you can limit interest charges in any rate cycle:
Making more than the required minimum payment each billing cycle can help you pay down balances faster. Pay off your credit card purchases in full whenever possible to avoid debt altogether and maintain good credit.
If you already have credit card debt, a 0% APR offer on balance transfers could help you reduce it. When you make a balance transfer, you can pay down your existing balances without interest over a period typically lasting around 12 to 21 months (after paying a balance transfer fee).
Any remaining balance will accrue interest at the standard variable APR when the offer ends.
Read more: The best balance transfer credit cards
Some credit cards carry low intro APRs on both new purchases and balance transfers. If you’re considering opening a new credit card, securing a lower interest rate for several months could help you avoid rising APRs for a while or pay off a large purchase interest-free over the intro period.
If you’re thinking about applying for a new card with a 0% APR offer, compare your options before applying. The best credit card for you depends on your individual situation, so it’s important to consider all the details and how the card may fit your longer-term financial goals.
Remember: The best way to avoid interest is to pay your balances in full. No matter which card you choose, charging only what you can afford to pay off is the best way to keep rising rates from affecting your wallet.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
