Kiwibank: Time is right to cut credit card interest rates

Wednesday, 26 June 2019

The key to getting out of credit card debt is to act early, before it gets out of hand.

Kiwibank is cutting interest rates on three of its credit cards.

The bank has announced it will drop its low rate card's purchase rate to 9.95 per cent a year from 13.45 per cent.

That means $1000 on the card will now cost $48 in interest, from $67 previously.

The cash rate for the card will drop from 22.5 per cent to 9.95 per cent.

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Kiwibank's zero and gold card rates will drop to 13.95 per cent from more than 20 per cent.

While the official cash rate has fallen from 5 per cent at the end of 2008 to 1.5 per cent now, mainstream credit card interest rates have moved very little.

Kiwibank is changing its credit card interest rates.

Standard card rates hover around 20 per cent at the main banks, with low-rate cards around 12.5 per cent to 13 per cent.

'This is the first time in many years that there's been a significant change to credit card interest rates,' Kiwibank chief marketing officer Mark Wilkshire said.

He said credit card rates did not move as freely as rates for such products as home loans but Kiwibank had looked at the interest rate environment and decided it was likely to be lower for longer.

Kiwibank said lower rates would give customers more options for short-term credit.

'With interest rates at an all-time low, reducing rates on our low rate cards is the right thing to do. This will help many of our customers, and it's one of the many ways in which we're committed to helping make Kiwis better off,' he said.

Banking expert Claire Matthews, of Massey University, said credit card rates rarely changed because demand was 'inelastic'.

'People in general pay little attention to the interest rates they pay on their credit cards. Hence the lack of impact of the official cash rate. There may be a little more interest in the actual interest rate for low rate cards, because the interest rate is the key selling point for the card, and therefore a change in the interest rate on one bank's low rate card could result in moves by the other banks – but that depends on the relative rates.'

The largest proportion of the bank's credit card customers were on the low rate card, Wilkshire said, and it was often used for short-term credit needs, such as when people needed to borrow money around Christmas.

The reduced rate applies from July.

Kiwibank is also ending its relationship with Mastercard and will only offer Visa.

Other banks have been approached for comment.