Mad Rich

A balance transfer fee is put into place to offset the cost of the lending institution for having to take on your debt from another company. The idea of a balance transfer was brought to the United Kingdom in the year 2000 by a creative online bank Egg plc, which offered consumers a bait of zero percent interest for six months on balances that they transferred from another credit card. Along with the transfer came a balance transfer fee because at the time, that company that was getting the transfer was assuming a lot of risk and was actually starting in the hole by accepting the debt. Before too long, the feature had become a hit among customers. More credit issuers picked up on the trend and began to give out similar deals of their own. Because of this, competition for customers has been fierce, meaning that credit card providers have had to provide more and more zero percent deals.

It did not take long for wise cardholders to spot a major flaw in the creditors’ thinking though. With so many cards giving out 0% deals, what was stopping people from becoming serial balance transferors, just moving their balance to a new card as the 0% period expired? From this, there was also the thought that people might start buying into the game of credit card surfing.

People eventually learned to take advantage of lenders, moving their large, revolving balances from one card to another. If they stayed organized, they could stay ahead of the companies by transferring their balance before any charges occurred. So the credit card industry was together extending millions of pounds of no interest cards over an indefinite period - not what they wanted or appreciated.

People were taking advantage of balance transfers in other ways, too. Some cards would let you transfer to a bank account instead of another credit card. It was now possible to transfer the whole credit limit on a new card to a high interest savings account and leave it there for the length of the 0% deal period, and just clear the debt and pocket the interest earnings.

This created a major headache for card issuers as the tables had been turned, and their card holders were now costing them millions of pounds every month to support. They had to make a change, and so it came to Egg plc to again introduce a new card feature called the balance transfer fee.

In May 2005, Egg announced that all balance transfers would now have a 'handling fee' of 2% of the amount transferred. The charge would be capped at £50. Other card issuers quickly followed suit, and now most balance transfer fees are charged. If there is a fee, make sure that you check the upper limit mentioned. While the maximum £50 fee may still be there, depending on the size of your balance, it may make it worth your while to take advantage of this offer, cards with no maximum not as attractive.
It all depends on how much debt you have and what interest rate you are getting if you are thinking about a balance transfer. A balance transfer fee is definitely worth it if you are just able to pay the interest on the debt that you already have. If that is all that you are able to pay then calculate the 2% that is charged and add the one time fee and see how much you can pay over that six month period. If you save money by transferring and paying the balance transfer fee then it would be well worth it to switch. If not, then you may have to look at other options.