Although the Fed reduced interest rates, some credit card APRs remain unchanged. Here's the explanation.

• Despite the Federal Reserve reducing interest rates in September, the average credit card interest rate remains unchanged.
• For some retail credit cards, interest rates have only gone up.
• To stay ahead of a new federal rule that limits credit card late fees, some card issuers are taking proactive measures.

The Federal Reserve's benchmark has a direct connection to the variable rate of most credit cards.

As the Fed raised interest rates 11 times starting in March 2022, credit card rates also increased, with the average annual percentage rate rising from 16.34% to more than 20% today, nearly reaching an all-time high.

In September, when the Fed reduced interest rates by half a percentage point, the average credit card interest rate decreased by only 0.13%. Since then, the Fed has made another quarter-point cut.

This holiday season, here are some effective ways to save money.

Over the past year, the average retail card rate increased by more than a full percentage point, according to Bankrate.

The interest rate on store cards is at an all-time high, just before the holiday shopping season, with a rate of nearly 31%, according to a LendingTree study.

CNBC previously reported that some retail card APRs have jumped as high as 35.99%.

Why some APRs are still rising

The Consumer Financial Protection Bureau's rule limiting late fees has prompted Synchrony and Bread Financial to make changes to their store-branded credit cards.

According to Greg McBride, chief financial analyst at Bankrate.com, imposing limits on fees can result in unintended consequences, including higher rates.

Borrowers who may fall behind on payments or default are being protected against by card issuers, according to him.

McBride stated that although reducing the late fee does not decrease the probability of a late payment, issuers will compensate for the risk in another way.

Matt Schulz, LendingTree's chief credit analyst, stated that it is not surprising that card issuers would attempt to anticipate the impact of the CFPB's new rule on their profits.

Schulz stated that stores desire to provide that card to any customer at the checkout counter, but there is a significant risk involved in doing so.

How to avoid paying sky-high interest

High APRs only affect consumers who carry a balance from month to month, while old debts are not subject to the same high interest rates.

McBride stated that no increase in rates would occur on an existing balance.

If the change in APR is caused by a shift in the underlying index, such as a change in the Fed's benchmark, it will affect the entire balance, he stated.

If the issuer wants to raise the rate, they can only do so on an existing balance if the cardholder is 60 days delinquent, according to McBride.

The delinquency rates for credit cards are already high, with 8.8% of balances becoming delinquent in the past year, and the number of borrowers with revolving balances increasing as more people accumulate new debt during the holidays.

The Federal Reserve Bank of New York reports that Americans' credit card debt has increased by 8.1% to a record $1.17 trillion compared to the previous year.

During the peak shopping season, McBride advises against using a store credit card with a high interest rate.

"This season, store cards are highly sought after," he remarked. "The allure of instant savings is enticing, but the advantage of the discount quickly fades if you begin to accrue debt."

To avoid high rates, pay your bill in full every month, although it's easier said than done, it should always be the goal, according to Schulz.

Paying balances in full, on time, and keeping utilization rates below 30% of available credit can lead to credit card rewards and a higher credit score, which can result in lower-cost loans and better terms in the future.