Balance Transfer Fee

Balance transfer fee is the charge implied by the lender on the balance transferred from one credit card account to another. The sole purpose of this fee is to save interest charges on the debt taken and encourage customers to switch to another credit institution.

This fee is usually a percentage of the transferred amount owed by the debtor. In most cases, these credit card companies charge no balance transfer fee. As a result, many credit card holders tend to conduct balance transfers and significantly progress with the debt held over time. However, the percentage of this fee also depends on the institution and credit score of the debtor.

Balance transfer fee is an amount charged on the balance transferred by the customer to another credit card account. It allows customers to save on interest costs by enabling a 0% APR (annual percentage rate) on the transferred amount. Technically, the credit card company receiving the transfer amount charges this fee. It ranges between 2% to 5% or any fixed amount, depending on the credit institution. However, to attract customers, these companies may impose no fees on balance transfers. Thus, if a person has an outstanding debt of $12000 plus $200 on the credit card, they can switch to another credit card company and repay the accrued amount at zero balance transfer fee. 

With balance transfers, people find it easy to navigate their accrued debt on credit cards. They use it to move from a high-interest card to a lower one. During this period, any credit card company introduces a good offer, and customers can think of considering a balance transfer. By providing basic details like the name, the amount to be transferred, and the card's account number, customers can initiate a transfer with the credit card company offering minimal or no balance transfer fee. Individuals can also find this item separately listed under the fees section on the first page of the statement.

In the market, there are many credit card issuers providing lucrative features to newcomers. However, researching the best transfer fee rates helps customers make wise decisions. Let us look at the equation on how to use a balance transfer fee calculator before switching to another credit card issuer: 

Transfer fee =  Amount of Balance to be Transferred * Rate 

Here,

• Balance transfer fee - The amount ($) to be paid when transferring the balance
• Amount of transferred balance—This refers to the credit card balance meant to be transferred to another credit card account. For example, a person may wish to transfer $2000 of his current credit card to XYZ bank's credit card. 
• Rate - It is the rate (%) charged by the credit card issuer for receiving the balance amount.

In some cases, credit card institutions provide a zero balance transfer fee for a promotional period. As a result, customers only switch to gain the benefits of balance transfers for a specific period. Once the promotional period ends, they may again switch to another credit card issuer. Hence, in such situations, the credit card company may want the customer (the debtor) to repay the debt before the promotional period. In that stance, even the promotional rate is taken into consideration.

Let us look at some examples of how individuals can use a balance transfer fee calculator to determine the fee amount:

Example #1

Suppose James owns a credit card from Savney Bank that is currently used to make multiple purchases on both offline and online channels. Now, he has an amount of $13000 to be repaid along with an interest (4.4%) that rises every month. If James fails to repay the amount, this interest will tend to increase, thus doubling the debt balance. At this point, James felt he should switch to another credit card company. Coincidentally, Venas Credit Union was offering 3% for the long-term, and Humit Credit Union had zero fee rules for 18 months on doing the same. Thus, James decided to determine the best deal: 

Balance Transfer Fee = Balance to be transferred * Rate (%)

(Venas Credit Union) = $14000 * 3%

                                  = $420

Transfer Fees = Balance to be transferred * Rate (%)

(Humit Credit Union)  = $14000 * 0%

                                    = $0 or nil

The balance transfers performed in both cases were vastly different. Hence, James decided to go with Humit Credit Union because it offered nil fees.

Example #2

According to news published in November 2024, Wells Fargo and Expedia Groups have partnered to provide credit cards, One Key Card and One Key+ Card, to their customers. This initiative has hidden benefits for customers to earn rewards pertaining to Expedia, Hotels.com, and Vrbo. Additionally, these cards have 0% APR and a fee of up to 5% (or $5) on balance transfers. However, the premium (One Key+ Card) program does have an annual fee of $99.

Transfer fees can be a great incentive for moving into a low-interest credit card account. However, if these fees are high, the motive of switching also seems baseless. Hence, it is better to research the companies that provide the best no balance transfer fee cards. A few of them include the Navy Federal Credit Union Platinum Credit Card, Bethpage Federal Credit Union cards, Citi Diamond credit card, and many others. Yet, it does have a disadvantage over here. 

While other popular credit card issuers have a minimum fee of 3%, it is again favorable with a $0 annual fee and a long no-interest period for many customers. Ultimately, the decision rests with the customer. Any plans to repay the credit card debt in the long term can take up zero annual fee plans with a minimal transfer fee. Individuals can pay off a maximum (or large) amount before the APR period ends. As a result, there is less balance accrued for the rest period. Also, it is crucial to look at the time limits when choosing a credit card issuer. In comparison, some banks require the balance to be transferred within 45 days to avail of low APR. Likewise, other issuers may give more flexibility in this term.

Following are the pros and cons of considering transfer fees for the credit card balance owed. Let us look at the pointers explained in the below table: