Banks are steadily shifting credit risk on to their cardholders — despite the Fed holding rates steady

You probably know that when the Fed raises or lowers its benchmark interest rate, known as the federal funds rate, it can influence borrowing costs. When the Fed raises rates, borrowing tends to get more expensive for consumers on the whole, and when the Fed lowers rates, borrowing tends to cost less.

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However, despite the Fed holding its benchmark interest rate steady since December, some banks are raising annual percentage rates (APR) for credit card users that they deem to be riskier, while lowering APRs for borrowers with better credit.

And that’s something consumers should be aware of.

Why credit cards are getting more expensive for some borrowers

The Fed is not in charge of setting interest rates for consumer products like credit cards, auto loans, and personal loans. But its benchmark interest rate does directly influence how much it costs consumers to borrow. When the Fed raises its benchmark interest rate, it becomes costlier for banks themselves to borrow money — so they tend to pass that cost on to consumers. And on the flipside, when it’s cheaper for banks to borrow, they tend to charge consumers less to borrow. Banks or lenders also base this decision on other factors that include loan size and creditworthiness.

MarketWatch recently reported that a growing list of credit cards are seeing changes to their APRs. Your card’s APR determines how much your credit card balance costs you in interest.

Bankrate credit-cards expert Katie Kelton told the news outlet she noticed a small increase in credit-card rates during recent months.

Matt Schulz, an analyst at LendingTree, noted in the report that Fidelity’s Rewards Visa Signature card went from a single 18.24% APR in May to a variable APR of 17.24% to 27.24%. Likewise, Chase’s Sapphire Reserve Card used to have an APR range of 21.49% to 28.49%. Now, the top end of that range is 28.74%, while the lower end actually fell to 20.24%.

The reason banks are widening the range of their credit card APRs boils down to risk. Borrowers with lower credit scores may be more likely to default on their debt (be unable to pay it back), so banks try to offset that risk by collecting more interest on unpaid balances. They also want to reward their more creditworthy customers.

Of course, this isn’t exactly a new practice. When you apply for a loan, your lender will review your credit score and offer an interest rate based on how high or low that number is, among other factors. It’s also not unusual for credit cards to jack up APRs for borrowers with poor credit. But the fact that banks are doing it at a time when Fed rate cuts are on the horizon is telling. Many believe that the Fed will make its first interest rate cut of the year at its upcoming September meeting.

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The fact that banks are making changes to APRs ahead of that meeting shows that they’re feeling the broader squeeze of economic uncertainty.

“Banks hate risk and always try to avoid it,” Schulz told MarketWatch. “In an uncertain economy, there are a lot of risks out there, and part of what banks are doing to protect themselves is slowly raising interest rates, especially on folks at the lower end of the credit spectrum.”

“Banks are used to responding to a changing economy. But the muddy waters around tariffs, economic policies and consumer sentiment may be leading to precautionary moves from banks,” said Kelton.

When credit card APRs might come down for consumers

The Fed’s next opportunity to make a change to its federal funds rate is mid-September. But even if the Fed lowers interest rates as expected, it doesn’t mean consumers will get to enjoy relief overnight. It can take a few billing cycles for a Fed rate cut to trickle down to credit card APRs.

As of May, the average credit card APR was 21.16%, according to the Federal Reserve’s own data. But even if credit card APRs do come down fairly quickly, some consumers may not even realize it.

A recent LendingClub survey found that 47.1% of Americans do not know the APR they’re paying on their credit cards. A further 49.5% were not aware that their credit card APRs rose by over five percentage points between March 2022 and July 2023, when the Fed raised interest rates aggressively to combat inflation.

It’s also worth noting that the last time the Fed lowered interest rates, it was only a quarter-point drop. The Fed typically likes to raise and lower interest rates incrementally, as opposed to drastically, so this was not an unusual thing. If the Fed makes a rate cut in September, it will likely be only a quarter-point as well.

How to reduce your credit card debt

As of the second quarter of 2025, Americans carried a total credit card balance of $1.21 trillion, 5.87% above the level a year ago, according to the New York Fed. In March of 2025, it reported that 74% of U.S. adults have a credit card, and that 60% of those borrowers carry a balance from one month to the next.

If you have credit card debt, the sooner you pay it off, the better, of course. Losing money to interest eats into your monthly budget, so consider whether the snowball or avalanche method is better for you.

One thing you may want to do if you’re able to aggressively pay down your debt over the next year is transfer your existing credit card balances onto a single card with a 0% introductory APR. This gives you a break from accruing interest for a period of time, allowing you to pay down your principal more efficiently. However, make sure to read the fine print. The introductory offers only last a specific period, and you need to be able to repay the amount within that time to benefit.

Another option to consider is taking out a personal loan, using its proceeds to pay off your credit cards, and then paying off that loan in installments. With a personal loan, you’re likely to be looking at a lower interest rate on your debt than what your credit cards are charging you.

Case in point: In May of 2025, the average 24-month personal loan rate was 11.57%, according to the Federal Reserve, as opposed to 21.16% among credit cards.

You may, however, want to wait a couple of months before consolidating your credit card debt into a personal loan. If the Fed does indeed lower interest rates in September, personal loan rates could come down toward the end of the year, making it a more affordable option for you.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.