Effective today, Bank of America has raised balance transfer fees to 4% from a previous level of 3%. While this move was announced over a month ago, the very fact that one of the country’s biggest issuers of credit cards has taken this step could spell trouble for the future of balance transfer fees.
During the past half decade, credit card companies were engaged in a battle to win new customers. This was great for consumers, who were offered long term 0% interest rates and often charged little to no balance transfer fees. As the credit crunch intensified last summer, companies began eliminating no fee balance transfer deals. By fall, companies began to remove the limit on balance transfer fees. Prior to the fall, most companies charged a maximum fee of $75 per transaction. Anyone transferring less than $2,500 paid 3%, while those transferring more simply paid $75.
Before the ceiling was lifted on balance transfer fees, a person transferring $10,000 would have paid a maximum fee of $75. After the fee cap was removed, the cost skyrocketed to $300. With 4% balance transfer fees, the cost to transfer $10,000 is now $400, a whopping 533% increase in less than one year.
Nevertheless, balance transfer fees have always been more of a nuisance than a deterrent. Paying 3% or even 4% is a pittance compared to paying 15% or 19%. Unfortunately, the next element of the balance transfer house of cards to fall will likely be the 0% APR. Already, a number of companies have reduced the duration of 0% rates from 1 year to as little as 6 months. Additionally, the major companies are requiring much higher credit scores to qualify for these deals.
Ultimately, the next few months will prove very telling. Based on the trends that have developed in the past year, it is likely that balance transfer fees will rise across the board and 0% rates will be reduced to six month periods or replaced with 2.9% rates or higher.
Unfortunately, at a time when consumers could benefit most from 0% rates (and banks can borrow money for close to 0%), 0% balance transfers are quickly disappearing. Thus, as I’ve warned many times before, lock in a 0% interest rate while you still can. And do it with a good credit card company that offers a low long term APR after your 0% period expires.
