Return to Transcripts main page

American Morning

How the Interest Rate Cuts Affect Your Credit Card Bill

Aired November 08, 2001 - 11:21   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: After 10 interest rate cuts this year by the Fed, the cost of borrowing is about as cheap as it gets. But are those savings showing up on your credit card bill? Our Financial Correspondent Kathleen Hays checking in on that today. What are you finding out? Is it or is it not?

KATHLEEN HAYS, CNN FINANCIAL CORRESPONDENT: Well, you know, actually, Bill, it's somewhat surprising because we look at our credit card bills, we look at the rates we're paying, we say, "boy, that seems high. Why doesn't it go down?" Well, in fact, this latest interest rate cut by the Federal Reserve, which was Tuesday when they had cut their key short-term rate that banks pay each other for overnight money, very short term, that rate fell to its lowest level in 40 years.

And, in fact, that one rate cut alone is going to save about 600 million dollars in interest rate charges to consumers over the next year. And what's very interesting is when you look at the numbers, you see that, actually, credit card rates have fallen this year. The high in December of last year was 16.57. The average rate now down to 14.48. That's about 2 percentage points. You can't sneeze at that. And the average rate is now expected to fall to 14.12 which will be lowest in the credit card industry's 25-year history.

Now, if you wonder why your rates aren't falling more with a four full percentage point cut by the Fed this year, well, there's a variety of things. There are interest rate minimums set on a lot of cards. That prevents from falling more faster. Cards will have fixed interest rate charges that don't change either. Then there's another thing. Some credit cards adjust monthly, but some only adjust every three months. So the rates sticky to come down. I guess that's not a surprise. You're a bank, you make money on those rates, so you want to do it slowly.

But the Fed's rate cuts this year are going to save us about 11 billion dollars. 140 dollars average per family. So that's not so bad. And just one final thing, you know, don't be passive. If you want a better credit card rate, they're out there. You can go on the Internet to www.bankrate.com, there is ww.creditcard.com. There's just all kinds of things to look at. You know, be an aggressive shopper, and maybe you'll save some more money.

HEMMER: Nothing to sneeze at, as you say. You know, I know you're looking at credit cards, but there's a similar argument that can be made with home loans, too, when you try and refinance. And people look at it, and think, well, heck, why can't I get the same rate that they're lowering it -- dropping it by, now at 2 percent nationally. But there is a reason for that. Tell us why it is that way.

HAYS: Well, there is not -- there is not a direct correlation between the lowest rate -- again, that they pay each other, they're dealing in billions of dollars. You can't expect to get that same rate.

But, I'm telling you, this is a great time to refinance. A refinancing boom that was kind of cooling off at this latest rate cut is in full swing again. I would advice everybody to talk to their bank, their mortgage broker, whatever, check the rates out. They're very attractive. And the thing about it is, people always asking me, "gee, is it time to refinance?" I would say, its very hard to always catch the bottom. Start looking now because long-term rates are low. They may not go a lot lower. And don't worry about catching the absolute bottom. If you can save some money now, it's probably a good time to look at the deals that are out there.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com