The Federal Reserve Board cut interest rates by half a point in a surprise announcement Tuesday, March 3, in an attempt to combat the "evolving risks to economic activity" caused by the coronavirus (COVID-19), according to a statement by the Fed. This marks the most recent emergency rate cut since the 2008 financial crisis.
"My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook," Fed Chairman Jerome Powell said in a press conference.
The effects of the coronavirus "remain highly uncertain and the situation remains a fluid one," Powell explained. "We do recognize that a rate cut will not reduce the rate of infection… but we do believe that our action will provide a meaningful boost to the economy."
When the Fed cuts rates, it affects the various terms of financial products, such as interest rates on credit cards, mortgages, loans, savings accounts and more. Below, CNBC Select explains the affect that the emergency rate cut has on your credit card.
When the Fed cuts interest rates, variable rate credit cards are affected in a similar way. That's because card issuers base interest rates off the prime rate, which is directly influenced by the Fed's benchmark.
It's a domino effect: The Fed lowers the benchmark interest rate, then the prime rate decreases and lastly credit card APRs drop.
You can expect your credit card's interest rate to decrease by roughly 0.50% from the latest Fed cuts. So if your interest rate is 15.74% it may drop to 15.24%. This change can take one to two billing cycles, so be on the lookout for a lower APR within the coming month or so.
While a rate cut can seem like a good thing for cardholders, it's really not much help for those in debt. A slight decrease in APRs may send an optimistic signal, but a half percentage point cut will not add up to much savings on lingering high-interest balances.
If you have high-interest credit card debt, don't be tempted to only make your minimum payments. With debt top-of mind, it's an appropriate time to consider a balance transfer credit card to rid yourself of credit card debt once and for all.
Americans carry an average of $6,194 in credit card debt, leaving plenty of room to save money with a balance transfer credit card that offers an introductory 0% APR period. You can transfer existing debt from interest-bearing credit card(s) to a card that offers no interest for up to 21 months.
By completing a balance transfer and making sizable, monthly payments toward your debt, you'll be able to pay off debt faster than on a card with interest, where a portion of your payment goes toward interest charges.
If you want the most time to pay off debt, consider the Citi Simplicity® Card with a 0% APR for the first 21 months on balance transfers (then 14.74% to 24.74% variable APR) or the Discover it® Balance Transfer with a 0% APR for the first 18 months on balance transfers (then 13.49% to 24.49% variable APR).
And if you want to minimize fees, consider a no-fee balance transfer credit card, like the Chase Slate® or Amex EveryDay® Credit Card, both with a 0% APR for the first 15 months on balance transfers (then 16.49% to 25.24% variable APR for the Chase Slate or 12.99% to 23.99% variable APR for the Amex Everyday). (See rates and fees.)
Just know that balance transfers typically set maximum limits to the amount of debt you can transfer, and transfers between cards from the same bank aren't allowed. As a rule of thumb, read the fine print before requesting a balance transfer. And be aware that having good or excellent credit (scores 670 and greater) is often required to qualify for a balance transfer card. (Learn how to make the most of your balance transfer.)
For rates and fees of the Amex EveryDay® Credit Card, click here.
Information about the Amex EveryDay® Credit Card and the Chase Slate® has been collected independently by CNBC and has not been reviewed or provided by the issuers of the cards prior to publication.