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% to 5% applies. While this can range from $5 to a few hundred dollars, paying a 3% or even a 5% 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 (however, these offers have been popping up on a limited time basis from time to time). Nevertheless, in most instances, securing a 0% APR on balance transfers for even 6 months will likely require paying a 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. For example, a person who carries an average monthly balance of just $1,000 a year at a 12% interest rate will spend $120 a year in interest. With a balance transfer that only lasts one year, fee expenses will be $30 while $90 will be saved in interest. On a $4,000 balance transfer, the fee does reach $120, but the potential savings jump to $360.

Plus, now that the best balance transfer offers currently provide 0% interest rates for up to 21 months and only charge 3% fees, anyone carrying credit card debt that cannot be repaid within three to six months can save a substantial amount of money by focusing on long term savings as opposed to prickly up front fees.

The future of balance transfer fees: In an article on the history of balance transfer fees, I came to two disturbing conclusions. At the time of publication, I thought balance transfer fees would rise to 5% across the board or the length of 0% balance transfer offers would decline. While my prediction looked like it was coming to fruition back in 2009, things improved dramatically at the end of 2010 and have continues to improve substantially up to this point in 2012. Today, many good balance transfer offers that last 15 or 18 months only carry 3% fees. This may change in the future, but for the time being, 0% APR balance transfer credit cards with reasonable fees can still be found.