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Balance transfer fees at their lowest since 2006

Paloma Kubiak
Written By:
Paloma Kubiak

Balance transfer fees have fallen to 1.95% on average – the lowest recorded since October 2006.

A balance transfer is when you shift debt from one credit card provider to another which takes on the existing debt without interest.

This is usually for a limited time after which the debt will accrue interest. Balance transfer providers also tend to charge a fee for the switch.

According to data from Moneyfacts, balance transfer fees have fallen to 1.95% on average, down from 2.23% a year ago. They’re also 0.35% less than in March 2020 at the onset of the pandemic.

Further, this is the lowest recorded since October 2006 when it was 1.82%.

There’s more good news for borrowers as the average introductory interest-free term has surpassed 600 days for the first time since May 2018.

In Q1 2022, the average interest-free balance transfer term on credit cards rose to 602 days, from 577 days in December.

But the number of deals available have dwindled. In May 2018 there were 101 deals, far more than the latest count of 69, but the latest figure is the highest since April 2020 at 70 deals, Moneyfacts said.

Turning to purchase credit cards, it said interest-free terms have improved slightly over the past quarter, standing at an average 307 days at 0%. This is up from 303 days in December.

While the terms have improved year-on-year from 284 days, it’s still way below the longest recorded at 381 days in May 2017.

There are 62 options available compared to 56 a year ago and 68 two years ago, with the latest count being the highest since January 2022 when there were 63 deals.

But between the start of December and the start of March 2022 (Q1 2022), the average purchase APR (which includes card fees) rose to 26.3% APR. This is just below the highest rate recorded (26.4%) in October 2021.

Moneyfacts said new cards charging higher than average rates last month contributed to the rise.

Rachel Springall, finance expert at Moneyfacts, said: “The credit card market has had to adapt to economic uncertainties and, as we mark two years on since the first UK lockdown, the latest movements on balance transfer cards is welcome news for consumers looking to move their debts interest-free.

“One provider to make a notable change to its balance transfer offer last month was Sainsbury’s Bank, which increased its balance transfer card by one month to 24. Santander also increased its own interest-free offer to 21 months, up from 18 months on its fee-free deal. One of the most prominent offers to worsen was the market-leading 35-month deal from Virgin Money, which dropped down to 32 months. However, competitive deals remain in play despite some shifts to the market-leaders, with MBNA offering the longest deal today at 33 months, four months more than the longest deal a year ago from Sainsbury’s Bank at 29 months.”

The average UK credit card debt per household in December 2021, was £2,112, according to The Money Charity. Springall said this balance could be cleared in one year if £180 was paid off each month without interest being applied.

“However, if consumers stick to the minimum repayment, even a debt of this size could hang overhead for many years. As the cost of living rises, consumers may be tempted to reduce their credit card repayments and, while this is a nice flexible feature to have in times of need, it’s imperative borrowers are mindful of their debts, any interest-free deal that may be coming to an end, and switch if they want to avoid incurring interest,” she added.

But she explained that the best 0% balance transfer card for someone may not be the one with the longest interest-free offer, as there are credit cards out there with low balance transfer fees or even charging no fee.

“Not every borrower will be eligible for a headline grabbing deal, but it’s always wise for consumers to check their credit score before they apply, such as with Experian. If customers are struggling to keep up with their repayments amid the rising cost of living, they would do well to seek help from a debt advice charity,” Springall added.