How exactly is a balance transfe

A balance transfer means to transfer a balance from one credit card to another. The ‘balance’ is the amount of money currently owed on the credit card and will usually be transferred from an existing credit card account to a brand new credit card account with a new institution (bank).

How exactly is a balance transfer fee defined? It is not unusual to discover that a fee is applied for affecting this transfer of balances owing from one card to another. The fee is normally a percentage of the balance that is being transferred between cards.

Credit card providers and banks spend a lot of time and money promoting their credit card services, with a range of offers to entice you to be a new customer. Balance transfer promotions are seen to be a viable temptation to new customers and a way to decrease their current cards by paying less or no interest for a prescribed period. Normally credit card balance transfers are only offered to people without an existing account with the bank or service provider concerned, as the objective of the exercise is to get new customers.

An average balance transfer fee can vary from 1 to 3 percent of the balance being transferred between cards. Most cases will be capped, but if no cap is available the card balance transfer fee could be quite high.

Usually a balance transfer fee will be capped between $25 – $100. For example if the fee had been capped at $75 and the balance transfer fee is 2%, then the 2% would be applied to any balance up to say $4,250. But it wouldn’t make any difference as to whether $4,250 or $80,000 was being transferred.

Some providers offer a 'no interest' deal for periods up to sometimes as much as 15 months. When you understand how a credit card balance transfer fee works you could move balances between cards several times and get the benefits of interest free periods for quite lengthy periods.

Before getting too excited don’t overlook the importance of checking whether a card balance transfer fee is applicable otherwise you could find yourself out of pocket instead of benefiting. Last but not least check whether there is a cap on the balance transfer fee.

Are there any hidden fees for balance transfers?

Some balance transfer offers may have a fee. This charge is a percentage of the balance amount that is transferred, which may be from 1-5% (this varies and is subject to change at any time).

The fee may be capped, say at $100 or thereabouts, so even if the percentage would work out more than that, you don’t pay more. Check the terms and conditions closely before applying, any fee applied should be detailed on the issuer’s apply page – in the main detail or sometimes in the small print. If you have any doubts about this, contact the card issuer to check.

It is only possible to work out the fee when you know the amount that is approved to be transferred. You can arrange to pay if off by adding it to your first payment, or spread it over a few payments. Be mindful that the fee can also attract interest charges if left unpaid.

Be aware that the introductory offer rate applied to the transferred balance amount (for example 0%) only applies to the amount you transfer over from the old cards or loan. All new purchases, cash advances will be charged at the standard interest rates. Any standard fees applied to these transactions will also apply, as per the examples below;

Statement request fees – if you need to request a paper statement it can cost anywhere from $5-$25. Using internet banking usually allows viewing statements online to avoid such requests.
Cash withdrawal fee – This fee may be as a percentage of the cash amount (i.e. 2-5%) or a dollar amount, such as $4-$6 per withdrawal.
Foreign transaction fees – This will apply when you use your credit card overseas at stores or ATMs or when you shop online with overseas retailers.
Late Payment fees – This will be added to your statement if you make a payment late (past the due date on the statement).

FAQ: Can I close my balance transfer credit card when the promo rate ends?