Credit Card Glossary: Terms and Definitions
Variable interest rate
With variable-rate cards, your APR (annual percentage rate) can change. Usually, the rate is tied to another rate called an index. Also known as a floating rate. In the United States, most credit cards have variable rates, and most of them are pegged to one such index, the prime rate. The prime rate, in turn, moves in lock step with an interest rate set by the Federal Reserve called the federal funds rate. So if you see a headline that says “Fed raises interest rates” it means your cost of carrying a balance on your credit card likely just went up. In your credit card terms and conditions document, the variable rate is often stated as an index plus a margin. For example, your document might say your rate is “Index + 10.99 percent.” If the prime rate is your index and is at 4 percent, your card’s interest rate is 14.99 percent.
Terms from A-Z
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