If you're looking to do a balance transfer, you are likely to have to pay a balance transfer fee. But many people don't know exactly what it is, how much it is and how you go about paying it so I wanted to explain all the details.
A balance transfer fee is charged by your credit card company when you transfer a balance from a different credit card and is different to the interest rate. The fee is almost always a percentage of the transferred balance with a fixed minimum amount.
There's a few important details to know about balance transfer fees - different credit card companies treat them differently so read the guide below to find out more information, when you'll have to pay it and calculation examples.
When do you get charged a balance transfer fee?
You get charged a balance transfer fee every time you make a balance transfer into your credit card. You will only ever be charged the fee by the credit card that you are moving the balance to, not the credit card that you have just moved the balance from.
The balance transfer fee will typically be added to your account the moment the balance transfer is processed - this will usually be on the same day that the balance transfer is added to your account.
Remember that this may not be the same day that the balance clears on the receiving credit card - it can take a business day or in some cases longer for that balance transfer to be credited as payment so you will usually see it added to the credit card from which you made the payment a day or two before it will be credited onto the receiving card.
For more information, check out our detailed guide explaining what balance transfers are.
How much is the credit card balance transfer fee?
The balance transfer fee in the UK is usually 3% of the amount you transfer. Some lenders make it 2.99%, 2.95% or even 2.9% to try and make it look cheaper, but 3% or thereabouts is the standard.
Some special balance transfer cards will offer better deals for new customers. If you are applying for a new balance transfer card, you will normally still have a 3% fee if you're going for a long 0% interest deal on your balance transfer.
However if you pick a slightly shorter term, you can get a lower fee. This lower fee is often in the 1.0% to 1.5% range but the total term can be only 2 or 3 months less than the longer option. Given that the typical balance transfer term is about 30 months for the best credit cards, the lower fee option for a 27 month 0% deal is a much better deal and is much cheaper.
Recently some credit cards have begun offering 0% fee deals on shorter balance transfers - you may be able to get 12 months or more in occasional promotions without having to pay a balance transfer fee at all. The downside is that the 0% term is much shorter.
One important thing to remember is that all balance transfer fees (other than the rare cases where they are 0%) have a fixed minimum amount which is usually £3.
This means that if you transfer more than £100, you will just be charged the standard fee if it is 3%. But if you transfer less than £100, you will pay £3 regardless of how much you transfer.
This means it really is not worth it doing small balance transfers - if you transfer £30, your balance transfer fee of £3 is a whopping 10% of the amount!
How does the credit card balance transfer fee work?
The balance transfer fee works in the same way as other spend fees. When you complete your balance transfer, the credit card company will calculate the amount of your balance transfer fee and add it to your account.
This balance will be added to the balance transfer balance bucket. This is where it gets a little technical - your balance is split into a few different categories that have different interest rates and different charging rates.
Unlike penalty fees, spend fees are assigned to the balance bucket that relates to the transaction type you carried out. So balance transfer fees go into the balance transfer balance bucket and cash withdrawal fees (for example) go into the cash balance bucket.
When do you have to pay the balance transfer fee?
This question sounds incredibly simple, but the answer is less straight-forward than you might think. Almost all credit card companies today do not make you pay the balance transfer fee upfront.
The reason for this is that if they did, it would make your monthly minimum payment really high for 1 month followed by a number of much lower payments.
Some customers may easily be able to afford the regular minimum payment, but not the higher one that would immediately follow the balance transfer.
This means that most credit cards do not include spend fees in their minimum payment calculation. Spend fees are things like balance transfer fees, money transfer fees or cash withdrawal fees.
As a result, the balance transfer fee is effectively added to your overall balance transfer balance and so it is repaid as part of that balance. After the first statement following your balance transfer, the balance transfer fee will not be shown separately and will simply be part of the balance transfer balance on your statement.
Here's a simple example of how the balance transfer fee plays into, but does not really have a significant impact on the minimum payment calculation for a popular balance transfer credit card.
An example: Barclaycard Platinum Card (for balance transfers)
The Barclaycard minimum payment calculation is a little different to most other credit cards - here's what it says in the Summary Box (that's the only place you can find this information):
Minimum repayment is the highest of:
- £5 (or the full outstanding balance if it's less than £5).
- 2.25% of your main balance plus any Instalment Plan instalments due for that month
- An amount equal to any interest, default fees or account maintenance fees that have been added to your account since your last statement, plus 1% of the rest of your main balance plus any Instalment Plan instalments due for that month
So according to the above if you do a balance transfer, the balance transfer fee is not included in either #2 or #3 as a balance transfer fee is not a default fee (those are things like late payment fees and over limit fees).
So if you were to do a £2,000 balance transfer and had a 3% fee with Barclaycard, and had no other balance on the credit card, your balance at the end of the month would be £2,000 + £60 (the balance transfer fee).
Your minimum payment would be the higher of:
- 2.25% of £2,060 (because balance transfer fees are included in Barclaycard's definition of "main balance" in their Terms and Conditions) which is £46.35
- 1% of £2,060 + interest. If you are doing a 0% balance transfer, this will be £20.60. If you're doing a regular balance transfer at a rate of 21.9% (the standard rate at the time of writing), this will be £20.60 + £33.28 for a total of £53.88
So if you're doing a 0% balance transfer, your minimum payment will be £46.35 and if not, it will be higher - £53.88 in our example.
Can you do a credit card balance transfer without being charged a fee?
If you already have an existing credit card, then it is incredibly rare for you to be able to do a balance transfer without paying a balance transfer fee.
Even on promotional offers to existing customers, there is almost always a fee attached even if the interest rate is set to 0%.
Even for new customers, the prevailing majority of balance transfer credit cards will have a fee with the majority charging the same 3%.
If you shop around, it is possible to find 0% fee deals on balance transfer credit cards on some comparison websites. You will usually get a much shorter 0% interest term - something like 12 months instead of the 30 months (give or take) you might be able to get on a normal balance transfer credit card.
If you go for this offer, you'll be able to move a balance without paying a credit card balance transfer fee, but you'll need to stay on top of your finances because you'll either have to move it again within a year or begin paying interest.
How to calculate the balance transfer fee with examples
Calculating the balance transfer fee is very easy.
All you have to do is take the amount you are looking to transfer and multiply it by the fee percentage to get the fee you will be charged.
This fee will be added on top of your balance transfer rather than taken from it. So if you want to transfer an amount of money, the total balance added to the paying credit card will be larger by the amount of the fee.
For example, if you are doing a balance transfer of £1,000 and the balance transfer fee is 3%, then your balance transfer fee will be £30. The total amount paid into the receiving credit card will be £1,000 and your paying credit card balance will increase by £1,030.
Even if the numbers are not round, you can use a simple calculation to work out the balance transfer fee amount.
If you're transferring 3,189 and the balance transfer fee is 1.45%, then 3,189 x 1.45% = £46.24. The total amount that will be added to the balance of your paying credit card is simply £3,189 + £46.24 which is £3,235.24.
Important things to know about balance transfer fees
Here's a few important things to remember about balance transfer fees:
- You will usually have to wait a day or two for the balance transfer to go through before you will see the balance transfer fee applied to your account.
- Balance transfer fees are much less prominent in marketing materials when you're looking at balance transfer credit cards. The interest rate is usually written in big bold font so make sure you check the small print for the fee as when all credit cards offer 0% promotional rates, the fee is the real difference in cost.
- You will not have to pay the fee when you make the balance transfer. Instead your balance transfer fee will be added to your credit card balance and repaid the same way as the rest of your balance transfer.
- Credit cards often do promotional rates to existing customers which can offer lower interest rates and sometimes lower balance transfer fees. If your balance transfer is not urgent, you might want to wait a few months until you get one of these offers through so that you save on doing a much cheaper balance transfer.
Photo credit: Dean Drobot/Shutterstock.com