Yes, but not through the same automatic mechanism. While the Index (Prime Rate) moves in parity with the Fed, the bank also has its own component called the Margin.
Parity vs. Discretion
- Parity (Automatic): If the Fed raises rates by 0.25%, the Prime Rate moves by 0.25%. Your card’s APR will move by exactly 0.25%. This is automatic and requires no notice.
- Discretion (Manual): If the bank wants to raise your rate by more than 0.25%, they are increasing their Margin. This is a business decision by the bank, not a direct result of the Fed.
Interest Cost Comparison (per $1,000 balance)
| Scenario | Monthly | Annual |
|---|---|---|
| At Previous Rate (7% Prime) | $24.57 | $294.90 |
| At Current Rate (6.75% Prime) | $24.37 | $292.40 |
| Total Change | $-0.21 | $-2.50 |
Protecting Your Rate
The CARD Act of 2009 provides protections against sudden margin increases. Generally, a bank must provide a 45-day written notice if they intend to increase the margin on your account. During this 45-day window, you often have the right to close the account and pay off the existing balance at the old rate.