Interest rates down everywhere… except for your credit card

Wednesday, 26 June 2019

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

New Zealand banks make more than $60 million a month in credit card interest.

Now, commentators say it's time that low rates flowed through to credit cards, too.

The country is in a low interest-rate environment. The official cash rate and mortgage rates are at historic lows and there are indications the cash rate could yet drop further.

But credit card rates remain stubbornly high – mainstream cards hover around 20 per cent. Low-rate cards are between 12.5 per cent and 13.5 per cent, although Kiwibank this week cut its card to 9.95 per cent.

**READ MORE:

Data from the Reserve Bank shows that New Zealanders were paying interest on $4.1 billion of credit card debt in April, with a weighted interest rate of 18 per cent.

* Kiwibank: Time is right to cut credit card interest rates

* Mortgage rates fall on suggestion official cash rate could drop

* Simplicity's bank profit clock criticised as 'gimmicky'**

Banking commentator Claire Matthews, of Massey University, said it was because demand for credit cards was 'inelastic'.

Most consumers hoped they would not pay interest on their credit cards so did not focus on the rate they were offered to the same extent as they would with a home loan.

Kiwibank chief marketing officer Mark Wilkshire said he hoped the new Kiwibank rate would encourage others to move.

'With interest rates at an all-time low, reducing rates on our low rate cards is the right thing to do.'

Data from the Reserve Bank shows that New Zealanders were paying interest on $4.1 billion of credit card debt in April, with a weighted interest rate of 18 per cent. That's up from $3.9b in mid-2016.

It gave the banks $62.1 million in interest payments in the month.

The weighted average interest rate applied to balances that are being charged interest is exactly the same as it was in 2000 and only 1.8 per cent less than the peak in March 2008, when floating mortgage interest rates were more than 10 per cent.

Cameron Bagrie, of Bagrie Economics, said it needed attention.

'What's going on with regard to credit cards stands out.'

More questions needed to be asked about why there was not more competition in the market and why interest rates were so high, he said.

The Commerce Commission could do it with a market study. 'The Commerce Commission is asleep at the wheel.'

Sam Stubbs, founder of Simplicity, said it was 'crazy'.

'Banks in New Zealand make about $1 billion revenue from credit card interest, and prey on ignorance and apathy.'

He said many cards were advertised as having impressive incentives but their large membership fees or high interest rates cancelled out the benefits.

A Consumer NZ study has shown that people need to spend at least about $10,000 a year on a credit card to make most rewards schemes work.

John Kensington, head of banking and finance at KPMG, said how much of the credit card interest revenue became profit would depend on a few factors, including how much they had to pay for the money themselves and what percentage of customers were incurring interest.

'The margin would differ between banks and probably even within banks between their credit card portfolios.'

ANZ spokesman Stefan Herrick said his bank did not have a plan to reduce credit card interest rates 'but we are always monitoring market conditions'.

At Westpac, a spokesman said it regularly reviewed products and rates to ensure it was providing good value for customers.