Balance Transfer Fees 101

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 or 20 percent 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 balance transfer fee is 3 to 5% 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% is a pittance compared to the 10% or 20% 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 balance transfer fee credit cards that offer 0% rates have been pulled from the market by all the major issuers. In order to secure a 0% APR on balance transfers for even 6 months, you will likely have to pay this transaction fee.

Are balance transfer fees a bad thing? Unfortunately, they are a necessary evil. If credit card companies weren’t charging balance transfer fees, they wouldn’t be able to offer 0% interest rates that last for 1 year or more. Again, paying balance transfer fees does cut into balance transfer savings, but in the end, most people will save a lot more money by paying a balance transfer fee to get a 0% APR. Thus, for the time being, anyone able to get a 0% rate for 1 year should be more than happy to fork over a 3 to 5% fee.

The future of balance transfer fees: In an article on the history of balance transfer fees, I came to two disturbing conclusions. Either balance transfer fees will rise to 5% across the board 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 credit card while it is still possible.