New cheapest 0% balance transfer card

Neil Faulkner takes a closer look at the Lloyds TSB Online Platinum Credit Card and explains why it could be your best option...

There's a credit card I have overlooked till now, which enables you to effectively pay just 2.4% interest on your existing debts. If you want to put in a bit of effort, you can even beat the banks by effectively reducing the cost of servicing this debt to as good as zero.

The tips in this article only work for people transferring existing balances. If you want to borrow money fresh, consider How to spend less and have more. If you then still want to borrow, decide whether you want a personal loan or a credit card for purchases.

A 3% fee that equals 2.4% interest

I'll cut to the chase. I'm writing about the Lloyds TSB Online Platinum Card. You get a 0% deal for 14 months when you transfer an existing debt. As usual, this comes with a fee, and the fee here is the standard 3%.

A 3% fee sounds like more than the 2.4% interest in my headline, so I have some explaining to do.

It gets worse before it gets better. A 3% fee usually works out more expensive than if you paid interest at 3% APR. A 3% fee on £1,000 costs £30, but 3% APR on a one-year loan costs just £16.

This is because, with a fee, you pay 3% up front on the whole balance, whereas with a 3% APR loan you pay just a part of that 3% each month, and generally on a reducing balance.

Indeed, a 3% credit card fee can sometimes work out at an equivalent of 11% annual interest on some of the worst deals! Now you know why many lenders have been happy to offer 'just' 3% in fees.

But now I have even more explaining to do as to why this Lloyds card costs the same as paying 2.4% annual interest.

Here's how the Lloyds' card is the same as 2.4% interest

The Lloyds TSB Online Platinum card is one of the few cards where the interest-rate equivalent could very easily end up being lower than the 3% fee itself. This is partly because the deal is longer than a year, but it is mostly because, if you transfer at least £1,500, Lloyds will refund half of the fee within a couple of months.

If you transfer £2,000 and pay it off over 14 months in equal instalments, this will just cost you £30 after the cashback, making total repayments of £2,030. That's 14 repayments of £145.

Compare this with a £2,000 personal loan lasting 14 months. If it had cost you just £30 in interest, the interest rate you will have paid is 2.4% APR.

That's why Lloyds' 3% fee works out the same as paying 2.4% annual interest over 14 months. By converting the fee to equivalent interest in this way, we can more easily compare 0% credit cards with other credit cards and loans, and it's how I can safely say that this Lloyds deal is the best debt deal I have seen for a long time.

You can effectively reduce the cost to zero

You can do better even than that, if you are willing to put in a bit of effort.

You must always make a minimum monthly repayment to any credit card whenever you have debt outstanding – even if you're not being charged interest. With the Lloyds TSB Online Platinum card, the minimum monthly repayment is 1%. If you transfer £2,000 and add on the 3% fee, 1% of that is £21. That's what your first repayment will have to be to avoid fines, and to avoid having the 0% deal taken away from you!

If you repay the card in equal instalments of £145 each, I have already shown that's like paying 2.4% interest. However, rather than paying £145 each month, you could fix a repayment at the starting minimum of £21 per month for the first 13 months and save the difference – £124 – in a savings account. Before the end of the 14th month, you transfer those savings to your current account and pay off the debt in full.

If you use any of the most competitive easy-access savings accounts to do this, you'll make around 3% interest, or perhaps 2% after taxes. This offsets the card fee you have paid. In other words, from paying 2.4% interest, you will effectively pay nothing or close to nothing.

If all that sounds too complicated, don't worry about it. Just pay your debt off in equal instalments and you'll still pay the same in fees as if you had a personal loan charging 2.4% APR.

Careful how you use your card

If you use your card for other purposes than just transferring balances, it can get more complicated and you can fall for one of the nearly 30 booby traps that I have identified in the small print.

Although credit cards have recently got better in this regard (and Lloyds is better than some providers, as you can read in Credit cards that bend the rules) it's still simplest to avoid using your card for any other purpose, or you could very easily be hit by multiple expensive fines and surprise interest. What's more, the minimum repayment you have to make will rise above 1% of the balance if you have to pay fees or interest.

Hence, use this as a balance-transfer card only, avoiding purchases, and definitely, as with all cards, avoid cash withdrawals, cash advances or using any credit-card cheques you receive. All those are very expensive from day one.

You have other options

If you need longer to pay off your debt, or if you have had a Lloyds TSB card already and are therefore unable to transfer your debt to the Lloyds TSB Online Platinum card, here are some more choices:

Fees are rounded.

More: Compare credit cards | More power to your credit card | Avoid this sneaky rip-off