A Brief History of Balance Transfer Fees
During the past five years, and particularly during the past 2 years, credit card companies have consistently and dramatically raised balance transfer fees. When credit flowed freely from 2004 to the early part of 2008, balance transfer fees could be completely avoided, if not limited to $75 or less. Unfortunately, the days of no balance transfer fee credit cards are over. Today, the number of major credit card companies offering no fee balance transfers along with 0% interest rates for 1 year stands at ZERO. And because the Card Act has limited the way credit card companies make money, balance transfer fees are here to stay.
The No Fee Boom Years:
From 2006 to early 2008, finding a credit card that charged no balance transfer fees wasn’t very difficult. During this period, credit card companies were literally fighting for your business. And, with every major company offering 0% APR balance transfers that lasted for 1 year, eliminating transfer fees was the only way to sweeten the offer. Here are just a few of the deals once available:
- In 2007, the Discover Platinum Card offered a 0% APR for 1 year on no fee balance transfers
- In early 2008, the Citi Professional Card offered a 0% APR for 1 year on no fee balance transfers.
- In mid 2008, the Bank of America Platinum Card offered a 0% APR for 6 months with no balance transfer fees.
At present, these companies no longer offer no fee balance transfers.
From No Fee to Low Fee:
While a wide range of no fee balance transfer offers existed until the middle of 2008, the majority of companies that charged balance transfer fees limited the total cost per transaction to 3% with a maximum fee of $75. This was the most common fee structure and every major credit card company adhered to this until the middle of 2008. With fee caps in place, the cost of a $10,000 balance transfer would be $75, or less than 1% of the total transaction. And while $75 is obviously more than $0, it is a far cry from the present costs.
Balance Transfer Fees in 2008:
Citibank and Bank of America were among the first major credit card companies to remove the dollar maximum from balance transfer fees. In April of 2008, Citibank balance transfer cards started charging a full 3% fee with no maximum, and soon after, Bank of America followed. Discover, perhaps the most consumer friendly of the major credit card companies, held out until the very end of 2008 until they too finally hopped on the bandwagon and removed transfer fee caps.
With the maximum fee removed, a person making a $10,000 balance transfer would now be paying $300 in fees instead of $75, a rather dramatic 400% increase. Nevertheless, the savings 0% balance transfers provide vastly offset fee expenses.
Balance Transfer Fees in 2010:
Today, a consumer who can get approved for a credit card that offers a 0% APR for a full year on balance transfers should happily fork over the 3% fee, as just getting approved for a credit card that provides a 0% rate is difficult in this environment. With fees taken into consideration, a person transferring $10,000 in debt from a credit card with a 15% interest rate can still save in excess of $1,000 in interest while greatly reducing the time it will take them to become debt free.
Unfortunately, balance transfer fees of 3% with no maximum have become the industry standard and 5% fees to get a 0% for a year will likely replace 3% fees. In a twisted reversal of earlier trends, credit card companies are fighting to lose your business. They now demand hefty fees from even the most creditworthy borrowers, and this trend is likely to continue for some time.
Balance Transfer Fees in 2011:
In 2011, credit card companies have increased the length of balance transfer offers and, on the average, decreased balance transfer fees to a steady 3%. While the pre-crisis $75 fee limits are no longer in place, the length of balance transfer promotions has increased substantially, with 21 month promotions heading up the list of the best balance transfer credit card offers.
The Future of Balance Transfer Fees:
Although average balance transfer fees have stabilized in the 3% range, it is unlikely that no fee balance transfer offers will return in full force. Banks remain interested in obtaining fee revenue and balance transfer transactions are a good source of fee revenue. However, given how long current offers are relative to the credit crisis period, paying a 3% fee to obtain a 0% APR for 21 months is pretty good bargain.
For additional information, please see the 0% APR balance transfer section, where you can compare rates and fees.