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Video: What are variable interest rates?

Summary

What are variable interest rates and how will they affect you? Find out in this Quick Tip video

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If you are among the millions of Americans who carry a balance on their credit card, understanding what variable interest rates are should be, well, interesting.

Most credit cards in the U.S. have variable interest rates, which means your APR (annual percentage rate) can go up or down, depending on market rates.

But wait a minute — who exactly is this “market,” and what are they doing messing with your rate? 

Most credit card issuers peg their rates to the prime rate, though you’ll need to check your credit card agreement to know for sure. The prime rate is 3 percentage points above an interest rate set by the Federal Reserve called the federal funds rate.

Bottom line: If you hear the Fed is raising interest rates, your credit card’s APR will likely go up as well.

How soon could rates rise on your card? For that, you’ll have to spend more quality time with your card’s terms and conditions, aka “the fine print.” Some card issuers may change their APR at the start of the billing cycle after an interest rate increase — meaning your new APR may apply to purchases you already made this month. Other issuers may wait until the next quarter to change their APR.

Want to be bulletproof against interest-rate hikes? Pay off your credit card bill each month. No balance means no interest payments. Now that’s interesting.

See related:What to do if your credit card rate goes up

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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