The smartest balance transfer card

We show you how to compare shorter deals with lower fees to longer deals with higher fees. Which card is best right now?

Longer 0% balance transfer deals can be worth paying higher fees for, but how do you know if getting an extra two months free from interest on your debt is worth forking out an extra percent in transfer fees? Or is an extra five months of 0% interest worth 1.5 percentage points more on your transfer fee?

It can be an easy decision. If you are offered a three-month balance transfer deal with a 2.99% fee or a 12-month deal at 3%, you don't need a mathematician to tell you the second one is better. If the fee will cost you £29.90 for three months and £30 for 12 months, you'll take the latter.

Alternatively, if you were offered a 12-month deal at 3% and a 14-month deal at 10%, you're not going to be so crazy as to pay more than three times as much for just two extra months free from interest on your debt.

Apples and pears

In the real world, the best deals are closer together in price, so it is not so obvious which transfer deal offers the best value for money. Luckily, there is a mathematical method that can help us to compare these apples and pears – or, rather to compare the smaller, juicier apples (short transfer deals with smaller fees) to larger, older apples (longer deals with bigger fees).

To do this we convert the fee into an annual interest rate, which shows you what the APR of the card would be if the fee was charged monthly as interest instead.

I've done those sums for you, assuming that you will repay the whole debt in equal instalments. Here are the top balance transfer cards that don't have onerous conditions, such as tying you into less competitive products:

Best value balance-transfer cards on the market

Barclaycard has been as desperate to get card customers this year as Santander has been to get current account customers. As the table shows, Barclaycard now has three of the five best value cards on the market.

Although the fee on Lloyds' 15 month card is cheapest by £1 per £1,000 you borrow, when you take into account the extra month on the Barclaycard, the two deals are of equal value. The equivalent annual interest rate in the third column neatly reveals that to us.

The 16-month Barclaycard is therefore the most sensible card to go with if you're determined to repay the debt in equal instalments, since the convenience of having an extra month comes at a fair price compared to the Lloyds card, and it makes monthly repayments easier.

Low fees thanks to cashback

The Barclaycards and the Lloyds card in my table all charge a higher fee than shown above, but refund part of the fee in cashback a few weeks later. There are some terms and conditions for getting the cashback, but they don't appear to be onerous; just ensure you do the balance transfer swiftly after getting the card and don't miss any payments.

I asked Barclaycard why it refunds part of the fee rather than simply charge less to start with and it said it was a marketing decision. I expect that means they know people like getting cashback. That's fair enough, since there appear to be no catches. Lloyds told me they wanted to cut the fee immediately, and the easiest way to do that was to offer part of it as cashback.

Three tips on choosing a balance transfer card

1. If you choose to pay off your entire card debt in equal instalments over the life of the deal, it makes sense to go for shorter deals if you can afford the monthly repayments, meaning the 15 or 16 month deals in the table.
2. You might prefer to beat the system and effectively win back the fee you've paid, making the ultimate cost of the card zero. To do this, you go for one of the longer deals mentioned at 20 or 22 months, pay just the minimum repayments every month, and save the difference in a top savings account. In the last month, you pay off the whole balance. The savings interest you earn in between will pay for the fee.
3. If you can't pay off your whole debt before the deal expires, it makes more sense to go for the longest deal possible and pay off as much as you can before the deal expires. Using the savings trick in tip two will also help you to pay down your debt that little bit faster. However, if you have other debts that are costing interest, it usually makes more sense to pay those debts down faster instead.

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