KeyBank Offers Rewards for Paying Off Credit Card Debt

Consumers who add a few extra dollars to their credit card payment every month will be rewarded with a lower interest rate under terms of a new card being offered by KeyBank USA, the consumer finance subsidiary of KeyCorp.

The KeySmart card, unveiled Monday, gives customers three monthly payment options on either a Visa or MasterCard.

The standard card, which has a $20 annual fee, will be sent to all approved credit card applicants. Customers with existing Key credit cards can apply for the new card. Key is also offering a gold card with similar terms.

Customers who pay 5% or more of their balance will have a 10.9% interest rate the next month. If they pay 3%, the rate is 14.5%, and those who pay 2% get a rate of 16.9%.

Customers who pay their entire balance within the 25-day grace period each month will have no interest charges on purchases.

Robert Johnson, a senior research associate with the Credit Research Center at Purdue University, said the program may encourage consumers to pay off more of their debt.

“This is an interesting tactic,” he said. “It certainly is an attempt to relate the risk of the account to the rate being charged. If you show you can pay off a higher proportion, it implies that you are less risky.”

Key’s program comes just weeks after GE Credit Corp. announced it would impose an annual $25 fee on its GE Rewards MasterCard customers who pay off their balances in full. GE Capital, the first major card issuer to charge such a fee, complained that it is losing interest income on such accounts.