The Federal Reserve System, also known as the "Fed," is the central bank of the United States, essentially taking on the role as the "banks' bank" and the bank of the federal government. It is comprised of twelve Federal Reserve banks that represent twelve regions in the US. The Fed is governed by the Board of Governors.
The Federal Reserve has a number of responsibilities, including:
Overall, the Federal Reserve strives to support and enhance the US economy and its growth, prevent inflation, and stabilize prices.
Interest rates are the price it costs to borrow money and are expressed in a percentage of the amount borrowed. Interest rates affect every facet of money borrowing, including mortgages, auto loans, personal loans, and credit cards. The higher the interest rate, the more money you will spend over the time you carry a balance on a loan or credit card.
Low interest rates are often good for economic development, causing people to make larger purchases or charge more items. When there is more money than there is demand, money value lowers. This often leads to inflation, when companies realize they can charge more because the economy is good. When inflation occurs, the Fed often increases interest rates of everything from credit cards to mortgages to prevent inflation by balancing money and prices of goods.
On the other hand, interest rates that are too high can lead to an economic recession. Because the value of money is higher, interest rates are as well. When this occurs, spending begins to go down and businesses and the economy start to suffer. As a result, the Federal Reserve adds money to the system with the hopes of lowering interest rates and jump starting the economy. Once the economic state improves, interest rates will rise to stabilize.
Although the Fed impacts overall interest rates, you have much more control over the credit card interest rate you're offered when you apply. Generally speaking, those with the lowest interest rates on their credit cards have excellent credit scores, a near flawless record of repaying debt on time, and a low debt to income ratio.
If you want to secure the lowest credit card rates, work on improving your credit by paying bills on time, clearing up any negative accounts, and lowering the balances on your current lines of credit. Once you do this, your credit score will begin to climb and you'll be eligible for more competitive rates. A site called myFICO can show you more in-depth how to improve your credit card interest rates.
If you are in the market for a credit card, you can also take advantage of low interest rates being offered through promotions. This can include balance transfer offers, new customer offers, and other incentives. Do your research and compare cards and offers before deciding on a low interest credit card that's right for you.
The Federal Reserve affects credit card interest rates by lowering them when the economy is struggling them and leveling them when the economy is doing well. You can also influence your own interest rates by taking advantage of promotions and getting and maintaining a good credit score.