EconPlot › Explainers › Why your credit card rate is not the Fed's rate

The Fed's rate is 3.6%. Why does my credit card charge 21%?

Updated 2026-09-06 · how we source every figure

The Fed's 3.6 percent is a price banks pay each other, not a price anyone pays a bank

The federal funds rate is the rate at which depository institutions — banks and credit unions that hold reserve accounts at the Federal Reserve — lend reserve balances to one another overnight. That is the Federal Reserve's own definition of the federal funds rate, taken from the Federal Reserve's description of open market operations. The federal funds rate is a price charged between institutions that hold reserve accounts at the central bank, not a rate a household can borrow at.

The Federal Reserve is the central bank of the United States: the institution that issues the currency, holds the reserve accounts of commercial banks, and sets the terms on which those reserves are borrowed and lent. When news reports say "the Fed raised rates" or "the Fed cut rates," this overnight rate between banks is the rate being talked about.

The figure quoted on this page is the effective federal funds rate, which is the average rate actually transacted between institutions rather than an announcement. The effective federal funds rate was 3.63 percent in August 2026, published through the Federal Reserve Economic Data service run by the Federal Reserve Bank of St. Louis, and read on 3 September 2026.

Two things about an overnight loan between banks explain why the federal funds rate is far below a credit card rate. Such a loan lasts one night, so there is very little time for anything to go wrong before it is repaid, and it is made between two institutions that both hold accounts at the central bank. Part of any interest rate is compensation for the risk that the money does not come back, and very little of the federal funds rate is that compensation. A revolving credit card balance is the opposite case on both counts: it is open-ended in time, and it is unsecured — there is no house or car to take back if the balance is not repaid.

The Fed's rate does reach your card — it arrives through the prime rate

The Federal Reserve's rate reaches a credit card through one intermediate step: a published benchmark called the bank prime loan rate, which moves one-for-one with the Federal Reserve's policy rate and is the rate most variable-rate card agreements are actually written against. Those agreements state a variable annual percentage rate — the yearly cost of carrying a balance — as the prime rate on a given date plus a fixed number of percentage points, the margin, set by the issuer when the account was opened.

On 2 September 2026 the bank prime loan rate stood at 6.75 percent. Prime is customarily set a fixed distance above the top of the Federal Reserve's target range: the Federal Reserve does not announce a single number but a band that it wants overnight lending between banks to happen inside, and the effective federal funds rate of 3.63 percent for August 2026 is where that lending actually settled within the band. Prime shifts when the band shifts, which is why prime sits above the effective rate rather than at it.

Because the agreement names prime directly, a change in the Federal Reserve's rate does not have to wait on anyone deciding to pass it along. The change flows through the contract. That is why a policy change usually shows up on a card statement within a billing cycle or two rather than after months.

Because the card agreement names prime, and prime tracks the policy rate, the Federal Reserve's rate is not irrelevant to a card. It is the floor the card's price is built on, and it is a small part of the finished price.

Savings rates are set against the same short-term rate, which is why one Federal Reserve decision is reported as news for savers and for borrowers at once. A shared reference rate is not the same thing as the card mechanism, though: a deposit rate is set by the bank at the bank's discretion, not written into a contract as prime plus a margin, and the sources behind this page measure only the card side, so nothing here establishes how much of a policy change reaches a savings balance or how quickly.

About 17 of the 21 percentage points are not the Fed's rate

17.31 of the 20.94 percentage points charged on the average credit card are not the Federal Reserve's rate. That figure is the effective federal funds rate of 3.63 percent subtracted from the May 2026 average card rate of 20.94 percent, both readings for the same month.

The card figure comes from the Federal Reserve's G.19 consumer credit release, which measures the average interest rate on credit card plans across all accounts at commercial banks; that series' most recent published observation is 20.94 percent for May 2026. The effective federal funds rate is published monthly and read 3.63 percent in May 2026, and 3.63 percent again in August 2026.

Those 17.31 points are everything sitting between the overnight rate and the card rate: the distance between the effective federal funds rate and the prime rate, which is a pricing convention among banks rather than a Federal Reserve decision, plus the margin the issuer writes into the agreement on top of prime. If the Federal Reserve's rate went to zero tomorrow and nothing stacked above it changed, the average card would still charge 17.31 percent.

That the 17.31 points, and not the Federal Reserve's 3.63 percent, are the larger part of the card rate is what a headline about a rate decision leaves out. A cut moves the smaller of the two parts of the price. The change is real and it is small, and the reason it is small is arithmetic rather than any claim about anyone's motives.

When the Fed's rate fell sharply, the card rate hardly followed

The two rates fell by very different amounts over the last three years: the effective federal funds rate fell 1.70 percentage points between August 2023 and August 2026, while the average credit card rate fell 0.25 percentage points between August 2023 and May 2026, which is the latest published reading of each series.

The effective federal funds rate reached 5.33 percent in August 2023, its highest reading in the data used here. The same rate was 3.63 percent in August 2026.

Over the comparable span the average credit card rate went from 21.19 percent in August 2023 to 20.94 percent in May 2026.

The consequence is that the gap between the two rates grew. In August 2023 the difference was 15.86 percentage points — the federal funds rate subtracted from the card rate, both observed in that month. In May 2026 the same subtraction gave 17.31 points. The distance between the two rates is wider in 2026 than it was in 2023.

A caution about what this comparison does and does not establish: these are two series measured over the same period, not an experiment. The card figure is a national average across issuers and account types, and its composition can shift for reasons that have nothing to do with pricing decisions — for example, if the mix of accounts included in the average changes. The observation is that the gap was wider at the end of the period than at the start. Why it widened is not settled by these two series.

Both rates move, and the Fed's rate moves far more than the card average

Both numbers move over time, and the Federal Reserve's rate moves far more. In the data used here — two files read on 3 September 2026, both beginning in early 2015 — the average credit card rate runs between a low of 11.98 percent in February 2015 and a high of 21.76 percent in August 2024, a range of 9.78 percentage points across about a decade. That undercuts any picture of card rates as simply fixed.

The effective federal funds rate over the same span runs from 0.05 percent in April 2020 to 5.33 percent in August 2023, and stood at 3.63 percent in August 2026. A rate that travels from 0.05 percent to 5.33 percent and part of the way back inside a decade is moving a great deal; the card average moved across its narrower 9.78-point range while that happened, and in slow quarterly steps rather than in jumps.

That contrast is the whole point of putting the two lines on one chart. The distance between the two lines — 17.31 percentage points in May 2026 — is the share of the card rate that the Federal Reserve does not set.

• The Federal Reserve's rate is the part of the card price the central bank sets. It is published monthly, and it ranged from 0.05 percent to 5.33 percent over the decade in these files.
• The average card rate is the finished price a cardholder is charged. It is published quarterly, and it ranged across 9.78 percentage points over the same decade.
• The distance between the two was wider in May 2026, at 17.31 percentage points, than it was in August 2023, at 15.86 points.

The series behind this page

The same data the video plots, from the same file. Point at the line to read a value off it.

What this page does not establish

• The two series are published on different clocks: the credit card average is quarterly and its latest published observation is May 2026, while the effective federal funds rate is monthly and its latest is August 2026. The 17.31-point gap on this page is computed from the May 2026 readings of both series, so it is a genuine same-month figure — but the two series will not always line up like that, and anyone recomputing the gap from a later federal funds reading against the same May card figure is mixing dates.
• The 20.94 percent figure is an average across all credit card accounts at commercial banks, not a rate charged to anyone. The margin over prime is set per account when the account is opened, so individual cards sit above and below the average, and a reader who treats the average as a benchmark for their own agreement has mistaken a national aggregate for a personal one.
• The widening of the gap, from 15.86 percentage points in August 2023 to 17.31 points in May 2026, is an observation about two series, not a demonstration of cause. The average's composition can shift when the mix of accounts included in it changes, so part of the movement may reflect which accounts are being averaged rather than any repricing decision by any issuer.
• The prime-plus-a-margin mechanism describes variable-rate card agreements. A card with a fixed promotional rate, or a balance sitting under a fixed-rate offer, does not reprice when the prime rate moves, so the "within a billing cycle or two" timing does not apply to such an account.
• Every high and low quoted here is the extreme within the two files read on 3 September 2026, which begin in early 2015. A reading described as the highest or lowest is the extreme of that window, not a statement about everything the Federal Reserve has ever recorded.
• This page establishes only what the overnight rate reaches through the prime-plus-margin contract, which is credit card rates. Savings rates are named because they are repriced off the same short-term rate, but nothing here measures how much of a policy change reaches a savings balance. This page also establishes nothing about mortgages, which are priced against long-term Treasury yields — the return investors demand for lending to the United States government for ten years or more, a different price from the overnight one — so the arithmetic here should not be carried over to mortgages.
• The credit card series is published quarterly and its figures can be revised in later releases; a revision to the May 2026 reading would change the 17.31-point gap without any card rate having moved.

Questions people also ask

Sources

The evidence behind every claim above, as recorded when the piece was made.

fed rate 3 6 august 2026

Effective federal funds rate via FRED, series FEDFUNDS, local file data/FEDFUNDS.csv read 2026-09-03: observation 2026-08-01 = 3.63, rounded to 3.6 percent on screen and in narration (two significant digits, house rule).

fed is central bank overnight

The Federal Reserve is the central bank of the United States; the federal funds rate is the rate at which depository institutions lend reserve balances to each other overnight (Federal Reserve, 'Policy Tools: Open Market Operations').

short credit priced off the policy rate

Mechanism: banks' prime loan rate moves one-for-one with the Fed's policy rate and credit card agreements are written as prime plus a margin, so a policy change reaches card rates within a billing cycle or two. Evidence in the local files read 2026-09-03: DPRIME = 6.75 on 2026-09-02 against FEDFUNDS 3.63, the standard 3-point spread over the target's upper bound. Savings rates are repriced off the same short rate, which is why both are named.

card rate about 21 percent

Federal Reserve G.19 commercial bank interest rate on credit card plans, all accounts, via FRED series TERMCBCCALLNS, local file data/TERMCBCCALLNS.csv read 2026-09-03: the latest published observation is 2026-05-01 = 20.94, and 2026-02-01 = 21.00. Narration says 'about 21 percent' rather than a decimal because the series is quarterly and the exact figure is not the point.

markup is most of the card rate

Arithmetic on the two series above: 20.94 against a 3.63 policy rate leaves roughly 17 points that are not the Fed's rate. The video does not name that figure (the house cap is three numbers and this video uses two); it says most of the card rate is the bank's markup, which the chart shows directly with the Fed rate drawn as the target line.

chart

TERMCBCCALLNS plotted from January 2016 at build time from data/TERMCBCCALLNS.csv, with a horizontal target line at the August 2026 FEDFUNDS value 3.63 so the gap between the policy rate and the card rate is the visual.

no mortgage here

Owner decision 2026-09-03: this video previously explained the Fed-rate-to-mortgage gap, duplicating 2026-09-03-bond-yields. The mortgage chain now belongs to that video alone (mortgages track the 10-year Treasury, the more standard account); this one is strictly about what the overnight rate does reach. No mortgage figure or comparison appears here.

editorial

Explains, does not advise: no suggestion to open, close, pay down or switch any account.

doccard retired

Owner, 2026-09-03: 'why we need doc card? when we already have another card like this'. The doccard scene type rendered a headline on a bare paper card with no artwork at all, which is newscard minus the picture; it was the only text-only type in the renderer and every project had unused card art sitting beside it. DocCard was deleted from remotion/src/MarketShort.tsx and these scenes are newscard now. NewsCard took over its two extras: the kicker renders above the headline, and a highlight that is a whole sentence not lifted from the headline renders as a caption bar over the artwork instead of painting headline words yellow. Not one word of narration or on-screen text changed, so the script fingerprint and its validation still stand.

deepseek series codes on screen

DeepSeek review 2026-09-03, a finding Claude passed. The chart source line read 'Federal Reserve G.19 via FRED: TERMCBCCALLNS; Fed rate: FEDFUNDS, Aug 2026'. FRED is an initialism never spelled out, and TERMCBCCALLNS means nothing to any viewer. On-screen text is subject to the acronym rule like any other displayed line. The codes move out of frame into this record, where a reviewer can still trace them: FRED series TERMCBCCALLNS (commercial bank interest rate on credit card plans, all accounts) and FEDFUNDS (effective federal funds rate), both Federal Reserve, August 2026. The figures are unchanged.

sentence caption removed

Owner, 2026-09-05, on the staged drafts: 'the label ... should be removed. Way too many words and too little time to read ... they look like a caption, and is redundant with the caption almost. can we just please remove this type of text.' The caption bar was added on 2026-09-03 so the retired doccard's second sentence had somewhere to live; that was the wrong instinct. A short already burns in word-by-word captions, so a second block of prose over the artwork competes with the text the viewer is reading, in a scene lasting a few seconds. Removed from the renderer and from these scenes: scene 6: The rest is the bank's markup.

chart axes labelled

validations/chart-axes.md, owner catch 2026-09-05: 'why is there no x-axis and no y-axis labels? add, and add a validation rule. x and y must be clearly labeled.' The renderer drew gridlines with no values on them at all, so every chart in the library showed a shape rather than a measurement - a viewer could not tell a two-point move from a two-hundred-point one. ChartLine now writes the value at the top, quarters and bottom of the plot from yMin/yMax, with a unit from the new yUnit field, and takes an optional xLabel for the horizontal axis. A second defect surfaced with it: xTicks are generated on year changes, so a series that never crosses a year boundary produced NO horizontal labels - which is exactly what happened to the 2026-only jobs chart. build_video.py now falls back to month names in that case.

fed rate is a series not a line

Owner catch on the staged draft, 2026-09-05: 'I don't think fed rate is 3.6% for all years from 2017-2026.' Correct, and it was drawn that way: the Fed's rate was a flat `target` pinned at 3.63, the August 2026 value, stretched across a chart running from 2016. FRED FEDFUNDS over that window runs from 0.05 percent in April 2020 to 5.33 percent in August 2023, so the flat line misstated a decade of monetary policy and, worse for this video's argument, made the gap between the card rate and the Fed's rate look constant when it collapsed in 2023 and widened again after. The Fed's rate is now its own animated series from data/FEDFUNDS.csv on the same axis as the card rate, and the narration says the gap barely moves rather than implying the Fed's rate does not. This is the second instance of the same defect - Apple's research spending was a flat target at its latest value on 2026-09-05 too - so it is a pattern in how charts were written, not a one-off: `target` is for a genuine constant such as the Fed's 2 percent inflation goal, never for the latest value of a series that varies.

on screen text swept

validations/on-screen-brevity.md sweep, 2026-09-05. The dominant defect was one habit, not many: the headline restating the scene's own narration, so the card read aloud what the burned-in captions were already spelling out. A headline should be the label a viewer can take in at a glance, saying the angle rather than the sentence. Also fixed: highlights appearing nowhere in their headline (they paint nothing), stamps repeating a figure the headline already carries, and headlines of three sentences. The chart badge stays: it names what the two lines show, which no narration sentence does.

yellow belongs to type

Owner, 2026-09-06: 'Pull the yellow prompt.' Every image prompt asked for 'one marker-yellow highlight strip'. In black and white that strip WAS the accent and it worked; in colour the generator started using yellow as a compositional block, so the artwork's yellow competed with the yellow our typography uses to point at a word — two things claiming the same signal on one frame. Yellow now belongs to the type alone. The collage keeps its torn-paper colour blocks, which no longer include a deliberate yellow marker.

house style 2026 09 06

Applied the house changes settled on the egg-prices and costco pilots: image prompts moved from newspaper halftone black and white to full-colour magazine collage (saturation 41 -> 84, colourfulness 48 -> 74, against Economics Explained's 91 / 54); no marker-yellow in any prompt, so yellow belongs to the typography alone; and scenes after the stakes card carry the narration captions plus at most one stamp holding a figure, which is what the field's inner slides actually do. The colour-era prompt constraints - pin real colours, state how people are framed, state relative scale - are enforced by validations/scene-artwork.md and repaired by the heal loop below.

shared broll is colour

Owner, 2026-09-06: 'remove the shared black and white pictures'. Measured the three shared clips in assets/hero: broll-office.mp4 reads 165 saturation and broll-fed-dusk.mp4 100, both plainly colour, while broll-fed.mp4 reads 53 and is the muted one. validations/scene-artwork.md permits reusing an on-topic shared CLIP - 'thrift, not laziness' - so the fix is not to generate a new one but to point at the colour clip of the same subject that already exists. broll-fed.mp4 -> broll-fed-dusk.mp4, no generation cost. The borrowed shared IMAGES were a different matter and have all been replaced with per-project artwork, which is what the rule requires of a scene illustration.

phantom asset fixed

card-bank-hall.jpg was referenced by a scene with no prompt in generate.images and no file — the same phantom-asset class that killed the trade-deficit build. In the cloud it surfaces as a 404 from the Remotion dev server at render time ('Failed to load resource') rather than as a missing file, which is a slower way to learn the same thing. A prompt now exists. The library-wide check for this is a one-liner and belongs in check_renders.py, not in a person's memory.

own broll not generic

Owner, 2026-09-06: 'the shared videos and images, other than the fed, all seem to be bad and not conveying the messages of the slides.' Right, and it is the balance-scale defect in another form: a generic clip that fits any slide conveys none of them. broll-office.mp4 - anonymous office interior - was standing in for 'a buyback is a company buying its own shares back from investors' in one video and 'the Fed's number is only where the pricing starts' in another, two sentences with nothing in common. Each scene now has a clip prompted from its own nouns. The Fed building clips stay shared because the Fed building is a specific subject, not a generic one: two videos about the Fed showing the Fed is reuse, not vagueness.

silent outro card

Owner, 2026-09-06: 'Can we add a call to action slide at the end ... for users to follow my econplot videos to understand what moves your wallet.' Implemented as the one shape this channel's own rules allow. validations/punchline.md: 'A silent end card (no words) after the punch line is allowed - it is a held frame, not more video', so the punch line still lands last in the NARRATION and nothing follows it aloud. validations/editorial-register.md bans comment-bait specifically ('comment X and I'll send you', 'link in bio for') and says a plain editorial ending is fine - a channel name and what the channel is about is neither bait nor financial advice, which is what STRATEGY.md's 'no call to action' was written to exclude. validations/scene-artwork.md permits shared artwork for 'a channel-level element (a logo, an outro card)', so one card serves every video rather than each generating its own. The line is topic-tied where the topic earns it - 'what moves your mortgage' on the bond video - and the house line otherwise. 1.8 seconds, no narration, no audio.

Related

• What actually sets my mortgage rate?