27th SEPTEMBER 2006
WHEN CAN A 0% BALANCE TRANSFER COST 9%?
WHEN YOU PAY A BALANCE TRANSFER FEE
M&S Money urges credit card customers to look beyond headline rates and
check the real cost of 0% interest deals
New research from Marks & Spencer Money reveals that people who switch credit
cards to benefit from a 0% balance transfer could be worse off than if they kept the
debt on their existing card. The recent trend for credit cards to charge balance
transfer (BT) fees has meant that possible savings for ‘switchers’ are reducing fast.
Even though a BT fee may only be 2% or 3% of any balance transferred, it is an
up-front charge and based on the entire balance. By contrast, standard credit card
interest rates are displayed as an annual rate and interest is applied monthly to any
outstanding amount. This makes it difficult for consumers to compare the cost of
different balance transfer deals.
The following table gives BT fees an annual equivalent interest rate, making them
easier to compare against any existing credit card.
Balance transfer fees expressed as annual equivalent interest rates
Interest free months
Calculations based on initial BTs of £1,000 and equal repayments each month, with balances
being fully repaid by the end of the introductory 0% interest period.
A simple alternative for people looking to save on their interest costs, is to opt for a
credit card such as the &MORE Credit Card from M&S Money. It is one of the few
cards not to charge a BT fee and it’s now offering 0% for 12 months on all purchases
and 3.9% on balance transfers for the lifetime of the balance*.
Eddie Nott, deputy chief executive of M&S Money, commented; “You would like to
think that nothing could be cheaper than 0% interest, however the spread of credit
card balance transfer fees has in some cases wiped out much of the benefit of
switching. Fees of 3% are already being charged, sho