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Kiwibank charges on overdrafts

Kiwibank’s plan to charge interest on ‘interest free’ tertiary overdrafts has angered students who aren’t getting the deal they signed up for.

Until recently Kiwibank allowed tertiary students to enter $1,000 or $2,000 worth of interest free debt on their overdraft. However, after May 1 this year, all students on this scheme will have to pay five percent interest on their once interest free overdraft.

Louise, an honours student at the University of Auckland, signed up for a Kiwibank overdraft because it was ‘interest free’. On that basis Louise has taken out multiple overdrafts and has therefore requested that her full name not be used.

Louise says that the reality of renting forced her into debt.

“When I’ve had to move apartments urgently, I’ve found that the only way I’ve been able to get cash quickly is to get out an overdraft. And I’ve done that now with three different banks and I’ve basically got three maxed-out tertiary overdrafts.”

Louise is fearful that other banks will follow Kiwibank’s lead and that the interest rate will go up again.

“It’s a really scary thought for me and I’m sure a lot of other students as well. It would just basically cripple me. I don’t know if I could come back from an increased interest. Once debt starts compiling it’s really hard to minimise it. If I were to try and earn more money to pay it off urgently it would severely impact my studies.”

Louise says that Kiwibank did not ask her if she had an overdraft account with another bank when she applied for an overdraft with them.

The man behind this plan, Kiwibank’s Product Manager Transactional Accounts and Overdrafts, Mark Lonergan, says that interest has been introduced because the overdraft facility is not working as originally envisaged.

“Students, they need money, right? But the overdraft specifically is a safety net and we just didn’t quite feel that it was working that way.”

Lonergan says instead of using the scheme as a traditional overdraft, large numbers of students are living at their overdraft limit and using the facility as a loan, as opposed to an overdraft.

The interest rate will begin at five percent per annum, but Lonergan is unable to confirm that it will not rise any further.

“It’s impossible to say. The short answer is I don’t know; certainly there are no plans to change it.”

Other students who don't have an account with Kiwibank empathise with people like Louise and say they would have never gone into overdraft if they knew it would start raking up interest.

University of Auckland sociology student, Vanessa Cole, says she would never have taken out her overdraft with ASB if she had known interest could be charged. “It’s not fair that students were told that this was going to be interest free and, once they got the overdraft, interest is being imposed on them.”

Max Whitehurst, a masters student at the University of Auckland, has an interest free overdraft with ANZ. Max says the tertiary overdraft plans target groups who are already financially vulnerable.

“I got into the overdraft because I didn’t know about accommodation supplements or food grants and I had to pay rent… but with the accommodation supplement there are barriers to accessing that.”

Vanessa Cole says that banks make it easy to get into debt.

“The banks were everywhere on campus when I first started, offering all these different benefits, and they were allowed to be on campus talking students into these deals.” Nasra Mohamed, a first year law student at AUT, also felt that she was pressured into a scheme when she visited her bank.

“I went for a completely unrelated thing, and they just come up to you and they start offering you all this extra stuff, and they’ll be like ‘do you know you can do the tertiary package?’ I’m like, I might as well get it just in case.”

CEO of watchdog organisation Consumer NZ, Sue Chetwin, says Kiwibank is within its rights to change interest rates.

“It’s not great PR by Kiwibank but it’s in its terms and conditions that the bank can change interest rates any time. It is not required to give notice of the change.”

In saying that, she objects to Kiwibank continuing to offer interest free overdrafts to this year’s cohort of students, even after they notified current tertiary account owners in January of their plans to charge interest.

“Kiwibank [was] still advertising interest free tertiary overdrafts of up to $1,000 for first year students and $2K for second years. That is rank given its plans to dump interest free overdrafts.”

Kiwibank recently removed the advertisement from their website and no longer promote the interest free tertiary accounts.

However, Lonergan believes Kiwibank’s new policy will better prepare students for life after university. He says that charging interest on the overdraft will help students with the transition to a high interest rate after graduation.

“The intent was to discourage using too much of their limit. We’re trying to change the behaviour so that customers don’t get into as much debt on their overdraft.”

However, the students spoken to believe that rather than helping, the new policy will make an already difficult situation worse.

Louise says that after living expenses, she doesn’t have enough money left at the end of each week to pay off her existing overdraft.

“I don’t think being charged money is going make me magically come up with more money to pay it off. I think that it’s the opposite of the case. It’s just going to begin a debt spiral."

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