February will likely mark an important turning point in the balance transfer credit card market. Although average balance transfer fees declined sharply from 3.25% to 2.95% this month, average balance transfer durations took a downward turn as well. The latter change seems to indicate that credit card companies may no longer feel comfortable offering 0% interest rates for extraordinarily long periods of time, an issue that may lead to a return to the basic, twelve month balance transfer offers that were common prior to 2011.
Average 0% Balance Transfer Durations on the Decline
A handful of Citi balance transfer offers, which had carried 21 month introductory periods on purchases and balance transfers, were reduced to 18 months in February. While this is only a 15% decrease, the probability of 21 month balance transfer offers returning in the near future is quite low. Additionally, as a result of Citi’s pullback, average balance transfer lengths fell to the lowest level since May of 2011 and could prompt further reductions in length by competing banks.
At present, the Citi Platinum, Citi Diamond, Citi Simplicity and a version of the Discover More Card all offer 18 month introductory rates on balance transfers. However, only the Citi products offer the same 18 month 0% introductory period on purchases in addition to transfers. For additional information on these offers, please see the 0% APR balance transfer credit card comparison section of this site.
Average Balance Transfer Fees Drop Below 3%
Average balance Transfer fees dropped to their lowest level recorded since the inception of the SBT 0% Balance Transfer Index 2.95%. This represents a 12% decrease compared to last year and a 30% decrease since September of 2010. Unfortunately, two key drivers of this decrease are limited time promotions. The first, a no fee balance transfer offer from Discover, is slated to end on February 29th. The second, a newly revamped version of Chase Slate, is also being promoted on a limited time basis. Consequently, unless other issuers decide to follow suit, average balance transfer fees will quickly return to the 3% and higher range.
As mentioned above, Chase Slate and a version of the Discover Card are the only no fee balance transfer offers presently available. Most longer 18 month 0% APR cards, such as the Citi Simplicity card, charge 3% fees. However, there is very little correlation between balance transfer length and fees, as many short duration cards from Wells Fargo carry the same 3% fee as 18 months cards, while some U.S. bank offers charge 4% transfer fees on cards that only offer 6 month 0% periods.
For additional information, please see the no fee balance transfer credit card section of Smart Balance Transfers.
Thoughts on Market Direction
February may very well turn out to be not only the best month in 2012 for consumers seeking balance transfers, but perhaps the best month in recent history. Balance transfer fees likely bottomed out this month and, unless additional companies enter the no fee market, consumers should expect to pay 3% transfer fees for the remainder of the year.
The reduction of 0% APR periods by Citi is another signal that the balance transfer party that began in early 2011 is starting to wind down. Consumers will likely find that 18 months will soon be reduced to 15 months as banks reassess the direction of interest rates and the profitability of the long duration balance transfer offers that have been providing consumers with tremendous relief from the relentless accrual of credit card interest.