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Fed cut: credit card bonus
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April 18, 2001: 2:17 p.m. ET
U.S. credit card holders could save a total of $2 billion this year
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NEW YORK (CNNfn) - Wall Street investors weren't the only winners Wednesday following the Fed's surprise half-percentage point rate cut. The move will also save American credit card holders at least $1.2 billion over the next 12 months, according to an industry report.
According to Cardweb.com, a provider of credit card information, the figure could even top $2.0 billion if issuers of fixed-rate credit cards decide to lower rates to stay competitive.
In an aggressive move to avert a recession, the central bank's policy makers cut the target for the federal funds rate, an overnight bank lending rate, by half a percentage point to 4.5 percent. They also lowered the rarely used discount rate, for loans by the Fed to banks, one-half percentage point to 4 percent.
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The move comes just weeks before the next regularly scheduled meeting of the Federal Open Market Committee, the policy-making arm of the Federal Reserve Board, on May 15.
This is the fourth interest rate cut this year by the Fed aimed at creating demand and boosting domestic spending by lowering the cost of consumer borrowing.
Earlier cuts already shaved rates
Today's drop of 50 basis points on short-term interest rates will most likely lead to a drop in the prime rate to 7.5 percent this week, according to the Frederick, Maryland-based company. Earlier cuts have already sliced the prime rate from 9.5 percent at the beginning of the year to its current 8 percent.
Click here for more CNNfn's Special Report: Eyes on the Fed
Already, most Americans should be realizing savings on their credit card bills because of the earlier rate cuts. Nearly half of all credit cards issued in the United States have variable interest rates, most of which are based on the prime rate or LIBOR rate. As such, most card issuers are adjusting credit card rates monthly. Card issuers that adjust rates quarterly are now passing along previous rate cuts this month.
According to Cardweb.com, however, since short-term interest rates have declined already this year, it is likely that even fixed interest rates on credit cards will be impacted. If fixed rates drop, total savings could exceed $3 billion as a result of today's rate drop.
Combined with the January rate decreases, American consumers may save as much as $9.0 billion in interest charges this year compared with 2000. For the average household, the savings so far will total about $90 per year.
The report indicated that American consumers currently owe $666 billion on all credit cards. Of that, $568 billion is owed on major cards such as VISA, MasterCard, American Express and Discover. Approximately $98 billion is owed on retail and store credit cards. 
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