Credit card firms turn the screw on balance transfers
Credit card firms have raised average balance transfer fees for switching debts by 0.5 per cent to 2.67 per cent in the year since they were forced to cut charges by regulators, according to new research from MoneyExpert.com…
That compares with 2.1 per cent average in September 2006 as card firms bid to earn back the cash they’ve lost from regulators forcing them to cut back fees for missing payments and going over credit limits, the independent financial comparison website’s research shows.
Currently 160 credit cards offer the chance to transfer balances with fees ranging from 1.75 per cent to three per cent. Around 90 cards on the market charge a flat three per cent fee for balance transfers. That means someone transferring a balance of £5,000 will have to pay £150 in fees.
MoneyExpert.com is urging customers switching cards to cut the interest rate they’re paying to focus on fees as well as the new lower rate. The Office of Fair Trading told credit card companies to limit default charges to £12 from August 2006.
Sean Gardner, Chief Executive of MoneyExpert.com:
“What goes down must go up seems to be the experience in the credit card industry.
“Card firms have lost out since they were forced to cut so-called default charges so now customers are losing out as balance transfer fees increase.
“Analysts talk about the so-called water bed effect - cuts in one area mean increases in another area. And that has been the experience for credit card customers with new charges appearing to replace the old charges which have been cut.
“Customers should of course still switch credit cards in search of better deals and particularly if they are paying standard rates of 16.9 per cent or so on debts. But they’ve got to remember there is a cost involved and factor that into any savings they make.”
Just 34 cards charge balance transfer fees of two per cent - they include ones from NatWest and Royal Bank of Scotland and Stroud & Swindon Building Society.
And only one card currently charges a balance transfer fee of less than two per cent - Capital One’s 1.7 per cent balance transfer fee on its Platinum Mastercard which charges 9.94 APR on purchases.