Variable Interest vs. Fixed Interest

June 10, 2010 - Erika C.
A credit card with a variable interest rate or variable APR will change as the prime rate goes up or down. The prime rate changes as the federal funds rate changes, which are set every quarter by the Federal Reserve. The federal funds rate is the interest rate at which banks borrow money from the Federal Reserve.
The prime rate is 3 percentage points above the federal funds rate. As the Federal Reserve raises or lowers the federal funds rate, credit cards that have variable interest rates will see APRs increase or decrease as the prime rate rises and falls.



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