Almost all credit cards issued today feature a Variable APR. This means your interest rate is not a permanent number; it is designed to change periodically based on the broader economy.
How a Variable APR is Calculated
Your APR is actually made up of two distinct parts added together:
- The Index: Usually the U.S. Prime Rate. This is the part that moves when the Fed moves.
- The Margin: A fixed percentage based on your creditworthiness (e.g., 14.99%).
When the Index moves up by 0.25%, your final “Variable APR” moves up by 0.25% as well.
Interest Cost Comparison (per $1,000 balance)
| Scenario | Monthly | Annual |
|---|---|---|
| At Previous Rate (7% Prime) | $21.66 | $259.90 |
| At Current Rate (6.75% Prime) | $21.45 | $257.40 |
| Total Change | $-0.21 | $-2.50 |
Can the Bank Change the Margin?
Under the CARD Act of 2009, banks generally cannot increase your fixed “margin” on existing balances during the first year of an account. After that, they must usually provide a 45-day notice before increasing the margin itself. However, changes to the Index (the Fed’s part) can happen automatically without notice.