Card firms call time on rate chasers

Moving your debt from one 0 per cent deal to another is no longer the no-brainer it once was, writes Ali Hussain

Savvy consumers have been warned that the days of constantly switching credit cards to take advantage of 0 per cent deals may be numbered. Credit card firms are slowly killing off the remaining “rate tarts” — people who switch between interest-free credit cards so they never have to pay off their debt — with ever higher fees, according to research by Moneyfacts, the data provider.

Michelle Slade of Moneyfacts said: “Long gone are the days when rate tarts could jump from one credit card provider to another without incurring fees.”

Barclaycard started the trend of balance transfer fees in 2004. Today almost all providers charge an upfront fee for their balance transfers.

Initially, typical fees were capped at £50, but some lenders, including Halifax and AA Visa, now charge up to 3 per cent of the balance. There are currently only three cards without a fee — Britannia building society’s Classic Intro Visa, Britannia’s Platinum Intro Visa and Sainsbury’s Bank Advantage Visa.

However, they offer the shortest 0 per cent deals on the market, at five months, which does not give you long to clear your balance. In contrast, cards such as GE Money’s Transformation Mastercard and HSBC’s Bank Mastercard offer an additional seven months with no interest, but they charge fees of 2.5 per cent and 2 per cent respectively, both with a minimum of £5.

Slade says choosing the right credit card depends on the length of time the consumer takes to repay the debt.

If you transferred a £1,000 balance to the no-fee Britannia Classic card, it would cost £89.90 in interest if the balance was paid of after 12 months. In contrast, by transferring the balance to the GE Money Transformation Mastercard, which has a 12-month interest free period, it would cost only £20 in fees as no interest will have been charged.

However, if the debt was paid off in six months, it would cost the Britannia customer £12.37, and the GE customer £20.

Slade said: “If the consumer can afford to repay the debt within a short period of time, say six months, they could be better off choosing one of the 0 per cent deals without a fee. But if the debt continues for a longer period, a fee deal may be preferential or even a low-rate lifetime deal.”

Another factor to consider is the size of the balance transfer. “A fee capped at £50 would clearly be better than an uncapped charge of 2 per cent for any balances greater than £2,500. With the highest uncapped fee currently at 3%, transferring a balance of £5,000 would cost £150,” she said.

Remember that purchases rarely qualify for the 0 per cent offer. HSBC Mastercard, for example, charges 0 per cent for 12 months on transferred balances but 15.9 per cent on purchases. You should therefore find a separate card for your spending, such as M&S Money and More Mastercard which charges 0 per cent on purchases for 12 months.

It is worth looking around for another card a couple of months before the 0 per cent offer ends to avoid paying interest.

Banks have been accused of increasing balance transfer fees to recoup some of the £300 million in lost revenue following the introduction of a £12 limit on late payment charges. The rule was imposed by the Office of Fair Trading (OFT) earlier this year.

The average increase in balance transfer fees since July could generate £363m in the next year, according to comparison firm Uswitch.

Since the OFT rule came in, Halifax has increased its balance-transfer fee from 2 per cent to 3 per cent of the balance with no cap, while Lloyds TSB has upped its charge from 2 per cent to 2.5 per cent. First Direct’s fee has also increased by half a point to 2.5 per cent.