Fees on long term Credit Card balance transfers

Balance transfers are one of the ways in which credit cards can have their interest cut effectively by hundreds of dollars a year.  However balance transfers can charge fees and it is important to understand how those fees are charged.

A balance transfer is when the money that is built up on one credit card is transferred to another credit card.  The main reason why this would be done would be because the new card offers low interest rates.  This low interest rate may be an introductory offer which lasts for a few months or it may be at a higher interest rate than the introductory offer but lasting for a longer time.

A balance transfer fee is essentially an administrative fee that is charged to make sure that the balance transfer goes through.  Some credit cards do not charge it, as many borrowers are becoming more aware of it and factoring it into their calculations.  However it is not a prominently advertised fee and can add to the interest that is actually being paid.

The way in which the balance transfer fee is calculated is by a percentage of the balance that is being transferred on to the card.  This is usually about 1% or 2% of the card balance.  Sometimes a flat fee of around $30 can be charged, although this is relatively rare.

There is also often a limit on balance transfer fees and this is more important on large balance transfers than the percentage rate.  The limit will say that there is a maximum fee of, say $50, or it will say a balance transfer of up to $5,000 will be charged.  If the balance transfer fee is 1% this will have the same practical effect.  This will mean that a balance transfer of $5,000 will have the same balance transfer fee that a balance transfer of $75,000 will have.  The balance transfer fee on the $75,000 is effectively 0.067% of the balance that is transferred.

The balance transfer limit is more important on the larger sums than the balance transfer fee percentage.  If large amounts of money are being transferred on to the card then this can make a balance transfer fee irrelevant.  However in some cases the balance transfer fees are charged for each balance that goes on to a credit card, so if three cards are having balances transferred then the three cards will have three separate balance fees calculated.