With scores of "no-interest" credit cards to choose from, it pays to be able to tell them apart! Here's what to look out for when choosing a 0% card.
If you're one of the forty million or so adults who have never used a 0% credit card, you're missing out on a lot of fun!
If your first question is, "What's a 0% credit card?", you really have missed a trick. To begin with, it's important not to confuse true 0% cards with the standard interest-free periods offered by all credit cards. For example, Barclaycard users who buy goods on their statement date can enjoy up to 56 days' interest-free credit if they settle their entire balance by the following payment date.
However, 0% credit cards are an entirely different kettle of fish. They attract new cardholders by offering extended introductory interest-free deals, which fall into one of three categories:
- 0% on purchases for several months - so you can shop to your heart's content and pay only the minimum monthly repayments. To avoid paying any interest at all, you simply pay off the remaining balance just before the 0% deal expires.
- 0% on balance transfers for several months - by transferring other debts (such as balances on store cards, credit cards and, in some case, loans and overdrafts) to one of these beauties, you can avoid paying interest for an extended period.
- 0% on both for several months - the crème de la crème of credit cards, these allow to transfer debts and spend without incurring interest.
However, credit-card issuers are becoming increasingly concerned about the losses that 0% cards create. Of course, banks borrow money at ultra-low rates but, nevertheless, it's reckoned that 0% deals are costing them over a billion pounds a year.
Hence, lenders have hit back by introducing a number of sneaky fees and tricks to claw back some of their lost profits. Chief among these is the balance-transfer fee, which can turn a 0% deal into something quite different!
For example, here is a list of the balance-transfer fees levied by some of the UK's leading card issuers, based on each issuer's most popular card:
- Abbey: 2% of the value of each transfer; minimum £2.75; maximum £50
- Alliance & Leicester: 2%; minimum £2; maximum £50
- Barclaycard Platinum: 2%; no minimum; maximum £50
- Capital One: 2%; no minimum or maximum
- Citi: 2%; no minimum or maximum
- Egg: 2%; no minimum; maximum £50
- Halifax/Bank of Scotland: 2%; minimum £2; maximum £50
- Marbles: 2%; minimum £5; maximum £50
- MINT/NatWest/Royal Bank of Scotland: 2%; minimum £5; maximum £49
- MBNA: 2%; minimum £3; maximum £50
- Tesco Personal Finance: 2%; minimum £2; maximum £45
- Virgin Money: 2%; minimum £3; maximum £50
So, although you may not pay any interest for a long period on these cards, three transfers of, say, £1,000 each could cost you as much as £60 in fees. In my view, firms which charge these fees should not be able to advertise their deals as 0% offers, because their deals come at a price.
Having just analysed over 170 cards (what fun!), I've reached the following conclusion: it's fairly easy to find fee-free 0% deals lasting up to six months. However, if you want the longest deals, say, nine months to a year, then you'll usually be forced to stump up a fee. So, as always, the choice is yours: if you don't mind "rate tarting" every six months, you can avoid transfer fees. However, if you want a longer deal, be prepared to pay a fee.
Here's hoping you discover your perfect plastic!
More: You'll find all of the best 0% deals in our new improved Credit Card centre!
Cliff owns shares in HBOS, parent company of the Halifax and Bank of Scotland.
