Balance transfer credit cards are a great way to cut the cost of your credit card borrowing. But credit card companies have introduced balance transfer fees which are normally around 3% of the balance you are transferring.
If you plan moving an existing £3,000 credit card balance to a new balance transfer credit card then the card company will add their fee to your balance. If the fee is 3% then the balance transfer will cost you £90.
This balance transfer fee is normally added to your balance transfer and therefore will not attract interest. However some balance transfer credit card offers are a little sneaky and count the transfer fee as new credit card spending which will normally either not be interest-free, or, if it is interest-free, will have a shorter interest-free period. If you are unsure check the small print or ask the credit card company.
In any case most people save so much interest on with their balance transfer credit card that the balance transfer fee becomes almost irrelevant. NB: If you intend to repay your entire credit balance in just a few months – rather than over the entire length of the balance transfer credit card deal – then the size of the fee is important as it can be larger than the interest you will save.
But the balance transfer fee is not there to make the balance transfer credit card offer unattractive to potential customers, far from it. The balance transfer fee is there to ensure that the credit card companies make some money out of everyone who takes out a balance transfer credit card.
The credit card companies realised some time ago that that many of the savvy new customers (also known as ‘rate tarts’ or, more flatteringly, ‘guerrilla savers’) attracted by balance transfer credit card offers were only interested in paying off their credit card balances and not in racking up new debts on their credit cards. The balance transfer fee is actually a good thing as it makes it more likely that balance transfer credit card deals will continue to be offered. You just have to know how to play the system.
