A growing number of providers are charging balance transfer fees.

When you are deciding which credit card to choose for balance transfers, you need to look beyond the interest rate and consider both the introductory period and the fee. These conditions can both make a big difference to which credit card you decide to apply for.

Have there always been balance transfer fees?

No – a balance transfer fee is a fairly recent innovation. For some time, credit card companies made money from their 0% and low-interest balance transfer offers. They would encourage people to transfer their current balance to a new card in order to benefit from the rates for a set period. Of course, when that initial period was over, standard interest rates were charged on what was left of the balance and on new purchases. The credit card company had gained a new customer and that new customer was now paying a high interest rate.

So why do companies need to charge a fee?

Money experts advised people with credit card debts to use the 0% balance transfer fees to their advantage: take out a new credit card, transfer your current balance to it, pay off as much as you can during the 0% period and then transfer it again to another 0% card. This is a perfectly legitimate way to get 0% interest rates on your balance and to pay off your debts – but it left the credit card companies out of pocket; something they needed to rectify.

Who charged the first balance transfer fee?

That was MBNA, in 2004. A year later, a third of all UK credit card providers were doing the same and now nearly all credit cards carry a balance transfer fee of some description. This means that even if you transfer your balance away again once the 0% period is over, the credit card company has made some money from you.

How much is it?

The reason you need to check the balance transfer fee is because it varies from card to card. Most fees start at around 2% of the balance you are transferring, but some are as high as 3%. Some cards cap this rate – for example, MorganStanley only charges a maximum of £50 – but most will charge a straight percentage.

To compare balance transfer credit card rates, click on the “Best Balance Transfer” section of our website. We detail the fees, together with minimum and maximum charges where applicable. Once you’ve found the credit card that suits you, just click on “Apply Now” to go to the provider’s official online application form.

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