Fees and charges for balance transfers

Balance transfers are often looked through mainly as a way of lowering the interest that is charged, and it is a very effective way of doing this.  However there are also charges that should be taken into account when arranging a balance transfer.

The balance transfer fee is the most obvious fee.  This is usually for a figure, of around 1% to 3% of the balance of the card that is being transferred.  This will mean that on a transfer of $10,000 a 1% balance transfer fee will result in a $100 fee.  A 3% fee on this amount will result in a $300 fee.

This fee is usually charged straight on to the balance of the card.  Sometimes the fee is not noticed as it goes straight on to the balance when the new card is opened, and many card holders can be unaware that they have been charged fees for balance transfers even after going through three or four balance transfers.

This could mean that the balance transfer is uneconomical if there is not much difference in interest between the two cards, or if the card is not actually holding that large a balance.  This can also be uneconomic if there are a large number of balance transfers in a short period of time.

For most card holders the more important fact about a balance transfer is that the balance transfer fee is limited.  Many, but not all balance transfers, limit the amount of the balance that they will charge a card for.  This limit is usually expressed not as the maximum fee, but the maximum balance on which the card will transfer the fee.  For example, if there is a $5,000 limit on a 2% fee then the fee will be limited to $100.

This can mean that for a person with a $10,000 balance a 3% fee with a $5,000 limit is more attractive than a 2% fee with a $10,000 limit.  The difference is $150 on the 3% fee against $200 on the 2% fee.

Another cost of the balance transfer will be the annual fee. If the other card is not closed down then the annual fee will be charged for two cards where it was once charged for only one.  The annual fee can also sometimes not be noticed because it is being charged straight to the card.