Balance transfer fees and their effect on balance transfer savings

Balance transfer fees don’t tend to be as widely understood as interest rates, but often they determine whether a balance transfer is a sensible move and more often they determine which balance transfer credit card is most suitable for a cardholder’s financial situation. It’s a good idea to know how a balance transfer fee works.


A balance transfer fee is a fee charged by the balance transfer credit card’s issuing bank for assuming the balance from another card. It tends to be a one-off fee that was originally intended to cover the administrative costs of the balance transfer, although this is not now the case with all credit cards.

Balance transfer fees are generally calculated as a proportion of the balance being transferred rather than as a fixed fee. So if the balance transfer fee is 2% on a balance of $10,000 then the charge for the transfer will be $200.

Balance transfer fees are often capped, and this is very important for large sums. For example, if the $10,000 balance previously discussed would be subjected to a 2% fee but only on the first $4,000, then the fee charged would only be $80 rather than $200. However, if a competing card charged a balance transfer fee of only 1% but with no cap, then that fee would be $100, less attractive than the card with the higher headline rate.

These limits are generally applied to each separate balance being transferred rather than to the cumulative total, which can mean a far higher fee.

Credit card holders seeking a balance transfer credit card tend to ignore this fee, as it’s not generally quoted in the advertisements alongside the interest rate, although federal regulations state the fee must be reported on the advertisement offerring the credit card. Once the offer is accepted, the balance transfer fee is usually charged to the credit card balance along with the annual fee for the first year, another way the banks encourage customers to overlook this fee.

As the balance transfer fee is a one-off charge, it makes a difference how often the balance is transferred. For the credit card holder chasing very low interest rates on introductory offers that only last three months, balance transfer fees will soon mount up. As well, such behaviour is also likely to have an adverse effect on the card holder’s credit rating.

Properly managed, balance transfers will reduce the interest charged by a credit card, so they remain a sound financial tool and the amount of a balance transfer fee should be calculated against that interest. For most people, the proper question isn’t whether to transfer their credit card balance, but which balance transfer credit card they choose