 Balance Transfer Fees 101
Editor's Update September 23rd 2009: Not only are no fee balance transfers harder to come by than a no doc subprime mortgage, 5% is quickly becoming the new 3%. However, consumers who can get a 0% for 9 months or more still stand to save substantially even with these fees.
Editor's Update April 16th 2009: Not only are no fee balance transfers harder to come by than a no doc subprime mortgage, Bank of America will be raising balance transfer fees from 3% to 4% on June 1st 2009. It may be only a matter of time before other companies follow suit.
What is a balance transfer fee? When you transfer a balance from one credit card to another that offers a lower rate, a standard charge of 3% applies. While this can range from $5 to a few hundred dollars, paying a 3% balance transfer fee is much better than paying 10% interest.
In late 2008, the standard balance transfer fee was 3% with a maximum fee of $75. Thus, anyone transferring less than $2500 would pay 3% and anyone transferring more than $2500 would pay $75, regardless of the transaction size.
Today, the standard fee is 3% with no limits. Thus, whereas a person who did a $5000 balance transfer would have paid $75 in 2008, the cost is now $150. However, as stated above, paying 3% in a pittance compared to the 10% or 15% your current credit card company will charge you in the next 12 months.
What are no fee balance transfers? No fee balance transfers are just that. Fee free balance transfers. Unfortunately, no fee offers lasting more than 6 months have been pulled from the market by all the major issuers. Credit cards that currently charge no fees are only available to consumers with 800+ credit scores or do not come with 0% rates.
Are balance transfer fees a bad thing? Unfortunately, they are a necessary evil. If credit card companies weren't charging balance transfer fees, they would be unable to offer 0% interest rates that last for up to 1 year. Unfortunately, the length of balance transfer offers may shrink from 6 months from 1 year if the credit crisis continues. However, for the time being, anyone able to get a 0% rate for 1 year should be more than happy to fork over a 5% fee.
The future of balance transfer fees: In an article on the history of balance transfer fees, we came to two disturbing conclusions. Either balance transfer fees will rise or the length of 0% APR balance transfer offers will decline. Unfortunately, both may occur in the near future. Seven years ago, many credit card companies offered balance transfer rates of 3%-7%, but didn't charge fees. The same may happen in the near future.
Consequently, now is not a time to worry about balance transfer fees. It is time to grab a 0% APR balance transfer while it is still possible.
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