Why the Fed Can't Help You

When the Federal Reserve cut rates recently, it was good for all sorts of stocks.

My Foolish colleague Tim Hanson said it best: Even behemoths AT&T (NYSE:T) and Chevron (NYSE:CVX) were up like "penny stocks after a spam assault." Good one, Tim. But what if you don't own stocks?

What the bank pays ...
Most people think they'll profit anyway via lower interest payments. Yet that's not necessarily true. The Fed controls the fed funds rate, which is what banks such as JPMorgan (NYSE:JPM), Citigroup (NYSE:C), Washington Mutual (NYSE:WM), and Wachovia (NYSE:WB) pay to borrow.

You and I pay a premium to the fed funds rate for the borrowing we do and, thereby, allow banks to make money.

... Isn't what you pay
But it's actually worse than that. Aside from mortgages, most loans aren't closely pegged to the funds rate. Take credit cards. Average card rates have barely budged for two years, according to Bankrate.com.

That's the consumer credit market at work, says LowCards.com CEO Bill Hardekopf. He adds, "Even though the rate cut sounds good and may make consumers feel good, the half-point cut will not make a real difference in saving money on interest payments."

Be the squeaky wheel
What to do? Hardekopf says to talk with your credit card company. If you carry a balance, he argues, it may lower the rate because it wants to keep your debt and interest payments.

Hardekopf offers these four tips for increasing your chances of obtaining a rate cut:

1. Call when you have a good payment history and your APR is over 12%. The average APR is around 14.9%.
2. Call if you received a high rate for your first credit card and have paid on time and stayed under your credit limit for six to 12 months.
3. Call if your card started out with a low rate, but your issuer has increased it several times.
4. Call if you have had the same card for several years and your balance is under 30% of your credit limit.

Good advice. I'll add that even if you don't meet any of these criteria, you should still call and ask. All your lender can do is say no. And you have every right to go shopping for a better card if they do. (Here's how.)

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Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Washington Mutual and JPMorgan are Motley Fool Income Investor recommendations. The Motley Fool's disclosure policy gives credit without interest or late fees.