The once-extinct fee-free credit card balance transfer is seeing a resurgence, as several credit card providers have decided to bring it back from the dead, which will be advantageous to customers as they transfer £6.68 billion from one card to another over the next six months.
Free balance transfers had become unheard of, with the last ones dying out last year, and this is the first time since then that customers have been able to move their balances from one credit card
to another without incurring a two to three per cent fee.
However, the fee-free deals offer shorter introductory rates than those that do charge, and are only available to those with spotless credit histories, so it could remain better value for people with large balances to go for the one with the lowest long-term interest rate.
According to research from Sainsbury's Bank, 4.3 million people will transfer their credit card balances over the coming six month period – amounting to a total of £6.68 billion, or £36.74 million a day. The average amount transferred by each customer is £1,555, but 181,000 intend to switch over £5,000 and 95,000 will move more than £10,000.
Donald MacLeod, head of cards at Sainsbury’s, said: "It's not surprising that 0% balance transfers are popular, our research shows that there are an estimated 5 million people with outstanding balances who are not only incurring interest but also admit that it may take them longer than one month to clear their spend." When choosing a balance transfer card, he added, "it's also worth considering any purchases you may make and ensure that they are also covered by a 0% period."
For those customers who pay off their balance each month, Defaqto recommends shopping around for the cards that will benefit them the most, which will not necessarily be 0 percent balance transfer credit cards
David Black, principal consultant of banking at Defaqto, said: "There are a variety of reward based credit card schemes and these include points schemes, air miles and cashbacks." However, he said, those who do not pay off the full balance each month would do better to look for the cards which offer the most competitive and long-lasting interest rates.
Meanwhile, it has been found that of the 161,000 credit card customers that Egg culled from its books this year, at least three were millionaires, which has cast new scepticism over Egg's motivations for axing some customers which do not appear to pose any risk.
According to Egg, the move was not, as some have insinuated, "an excuse to exclude some 'unprofitable' customers" that pay off their balances each month without incurring any interest, but that the seven per cent of Egg's 2.2 million customers had their accounts cancelled because they "presented a higher than acceptable credit risk" to Citibank which took over Egg in May 2007.
© Fair Investment Company Ltd