Two years after it began hiking interest rates from near-zero, the Federal Reserve is keeping its target federal funds rate range at current historic highs of 5.25% to 5.50%.

For cardholders, that means credit card interest rates, too, will remain high for the foreseeable future.

The Federal Reserve’s interest rate hikes affect many types of debt — including personal loans, home equity, student loans, and more. Credit card balances and the interest rates they carry are no exception.

Here’s more information about the central bank’s latest decision and how interest rate movements can affect your credit card balances.

How the Fed affects credit card interest rates

The Federal Reserve is the central bank of the United States. It sets monetary policy partially by adjusting the federal funds target rate range. Since March 2022, the Fed has increased this range several times, aiming to bring down high inflation rates.

But what does this have to do with your credit cards? While the target range set by the Fed doesn’t directly change your credit card APR (annual percentage rate), it does play a significant role.

Here’s a breakdown of how the process works, from the Fed’s target rate range to the prime rate determined by banks to your credit card’s APR:

• Federal funds rate: This is the interest rate that banks charge each other for short-term loans. The Fed sets a target range for this rate at its Federal Open Market Committee (FOMC) meetings. Most recently, the Fed decided to leave this rate unchanged at a 5.25%-5.50% target.

• Prime rate: This is a benchmark rate for lending products offered by banks. The Fed doesn’t directly set the prime rate, but it’s based on (and tends to move alongside) the federal funds rate.

• Credit card interest rates: Lenders determine a variable rate range for credit cards using the prime rate, plus an added margin. Your interest rate will fall within this range based on various factors, like your credit score, as determined by your credit card issuer.

In summary: The Fed sets a target federal funds rate range, which banks use to determine their prime rate. Issuers then add percentage points on top of the prime rate to determine your credit card’s rate range.

Why credit card interest rates are rising

As the Fed rate increases, the prime rate also goes up, which means the interest rates on your existing and new credit cards likely will, too. But there is an exception: If you lock in an introductory 0% APR on a new card, that offer will remain even if the regular, ongoing APR rises.

Credit cards carry variable APRs that change with the prime rate, which is a big reason why the Fed's interest rate hikes can affect interest on cards you already have.

The central bank has increased its federal funds target rate range by several hundred basis points since March 2022 to more than 5%. In that time, the APRs set by credit card issuers have also increased.

These rates were relatively stable between 14%-16% for the past few years, according to Fed data. But since 2022, averages have skyrocketed to more than 20% APR. For credit card accounts that carried a balance and accrued interest, the average is even higher: around 22%.

How higher interest rates make credit card debt more expensive

You’re not alone if you think things are simply more expensive now than they were a few years ago. Interest rates are higher for all types of lending products — including mortgages, car loans, personal loans, and business loans.

At the same time, Americans are increasing the amount of high-interest credit they owe.

After exceeding $1 trillion earlier last year, credit card debt balances grew to $1.13 trillion by the end of 2023, according to the Quarterly Report on Household Debt and Credit from the New York Fed. At the same time, credit card delinquencies are also rising, with more than 6% of card accounts in “serious delinquency” of 90 days or more.

What happens to credit card debt when interest rates go up?

A higher credit card APR can result in you paying more — and for longer — toward your debt.

Record-high balances coupled with record-high interest rates mean many Americans are already paying more toward their credit cards today. Over time, interest charges can compound quickly as rates rise, leaving cardholders in debt for longer.

3 ways you can limit high-interest credit card debt

While interest rates today are still high, there is hope for borrowers ahead.

“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Federal Reserve Chair Jerome Powell said in a press conference following March's FOMC decision.

Even if federal interest rates fall, you shouldn’t expect big changes to your credit card APR. Carrying a credit card balance is one of the quickest ways to accrue lasting high-interest debt. If credit card rates do return to where they were before this rate cycle, that still means double-digit APRs for any balances you don’t pay by the due date.

Here are some ways you can limit interest charges in any rate cycle:

1. Pay more than your minimum payment

Making more than the required minimum payment each billing cycle can help you pay down balances faster. Pay off your credit card purchases in full whenever possible to avoid debt altogether and maintain good credit.

2. Consider a balance transfer credit card

If you already have credit card debt, a 0% APR offer on balance transfers could help you reduce it. When you make a balance transfer, you can pay down your existing balances without interest over a period typically lasting around 12 to 21 months (after paying a balance transfer fee).

Any remaining balance will accrue interest at the standard variable APR when the offer ends.

3. Research 0% APR credit cards

Some credit cards carry low intro APRs on both new purchases and balance transfers. If you’re considering opening a new credit card, securing a lower interest rate for several months could help you avoid rising APRs for a while or pay off a large purchase interest-free over the intro period.

If you’re thinking about applying for a new card with a 0% APR offer, compare your options before applying. The best credit card for you depends on your individual situation, so it’s important to consider all the details and how the card may fit your longer-term financial goals.

Remember: The best way to avoid interest is to pay your balances in full. No matter which card you choose, charging only what you can afford to pay off is the best way to keep rising rates from affecting your wallet.

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