Balance transfer fees are charged on credit card balances you transfer to a different credit card with a low introductory rate. They typically range between 3-5% and there is usually no cap placed on the fee. Depending on the terms of your balance transfer, these fees can have a big impact on how much you save, so it’s important to factor them in when comparing credit card offers.
It’s also important to know how balance transfers have changed in the last few years. For instance, in the past, balance transfer fees were often waived by major issuers. With so many offers flooding the market, banks felt they had to offer this kind of deal in order to compete. This is no longer the case. Since the credit crunch and passage of the CARD Act, banks tightened their wallets and the days of free balance transfers ended, although there are occasional exceptions – including the Chase Slate card, which is the only no fee card presently being marketed by a major bank.
A major post-CARD Act change to transfer fees is the removal of the cap that used to be in place on the amount of the balance transfer fee. In the past, almost all card issuers used to cap transfer fees. No matter what the size of the balance transfer, the maximum fee charged would not exceed $75 per transaction. Now, the typical fee is unlimited, which is quite a dramatic difference. On a transfer of $3,000 with a 4% fee, the cost of doing a balance transfer jumps from $75 to $120.
Even with the existence of balance transfer fees, a 0% APR balance transfer is still usually a good idea. For example, a person who transfers $3000 from a credit card with a 12% interest rate to one with 0% APR for 12 months with a 3% fee will pay a total of $90 in fees and no interest during the 0% period. If that same person opted not to do a balance transfer and paid $75 a month, they would spend $295 in interest during the same 12 months. In this situation, doing a balance transfer and paying a fee would result in $200 of savings.
In most instances, paying balance transfer fees is worthwhile. However, on short balance transfers, such as those that only last 6 months, fees can reduce the savings on a balance transfer significantly, making them worthwhile only to people with sky high 19% or higher interest rates. As a rule, avoid balance transfers that carry fees and last six months.
Also, some credit cards that offer 0% interest rates for just one year charge 5% transfer fees. While these offers can still save you money, finding a card that charges a lower 3% fee will save you more. On longer balance transfers of 15 months or more, paying a 4 or 5 percent fee is worthwhile, especially if you need more than a year to repay your credit card debt. With these balance transfer offers, the length of the 0% rate is more important than the transfer fee.
When all is said and done, balance transfer fees should be viewed as a nuisance rather than a reason to not transfer balances. While upfront fees may seem high, these fees are really quite small if you compare them to the amount of money you would spend on interest if you opted not to do a balance transfer and continued to pay a double digit interest rate.
To learn more about current offers, please see the balance transfer offers section of Smart Balance Transfers where you can compare credit cards and apply online.