If you're fed up with paying interest to lenders, this trick allows you to take an interest-free break lasting a year or more.
Banking is a brilliant business to be in, because it's fairly easy to make serious profits.
Indeed, for hundreds of years, banks have been a cornerstone of British commerce. At the beginning of the twentieth century, when Queen Victoria was still on the throne, stock market-listed banks accounted for about a sixth of the value of the entire London Stock Exchange. These days, five of the UK's thirteen biggest listed companies are banks. Hence, banking is a dependable, as well as a profitable, business.
One reason why banks make such large profits is that they borrow money very cheaply and lend it to borrowers at far higher rates. For example, the Bank of England's base rate is currently just 4.5% a year, yet most credit cards charge an annual interest rate in excess of 16% APR!
What's more, according to the British Bankers' Association, at the end of April, we owed £66.2 billion across 69 million credit cards, or almost £1,000 per card. As around three-quarters (75%) of this debt is interest-bearing, I reckon that we're paying around £7.7 billion a year in interest. This works out at more than £300 a year for each of the UK's 25 million households. Ouch!
However, for anyone with a half-decent credit history, paying interest on credit-card debts is largely voluntary, thanks to the joy of 0% credit cards. By opening a 0% on balance transfers card and moving your existing card debts across to it, you can avoid paying interest on your card balances for a year or more. Here are six of the longest 0% balance-transfer deals currently available:
0% balance transfers for twelve months or more
Card | 0% for 12 months from | Balance-transfer fee | Cost of |
|---|---|---|---|
Capital One Platinum MasterCard | From date of transfer until 01/09/07 | 2% | £40 |
GE Money Transformation MasterCard | Date card is issued | 2.5% | £50 |
Date card is issued | 2% | £40 | |
Date of transfer | 2% | £40 | |
Date card is issued | 2% | £40 | |
Date card is issued | 2.5% | £50 |
Note that all of these table-topping cards charge balance-transfer fees, with a single 0% transfer for, say, £2,000 costing between £40 and £50 to arrange. However, this is a small price to pay, given that you'd save upwards of £300 by avoiding interest for a year or so.
In the early days of 0% balance transfers, no card issuer charged a fee for balance transfers. Alas, nowadays, almost all 0% deals lasting more than six months come with a fee attached. However, these fees have led to a drop in new applicants for credit cards, so some lenders have responded by lengthening the period of their 0% transfer deals. Thus, we now have six 12-month+ deals to choose from, which I think is a new record.
(Incidentally, Capital One also promotes a limited '0% for 18 months' offer with an uncapped 2% transfer fee, but this requires you to spend £100 within three months of your account opening. As this £100 will attract purchase interest of around £24 over these eighteen months, I have excluded it from the above table.)
Finally, offering a year's interest-free credit is a big loss leader for credit-card firms, so it remains to be seen just how long these lengthy 0% deals will last. My advice would be to buy now while stocks last!
You can learn how to become a master 0% card player in How To Master Your Credit Cards.
More: Use the Fool to compare credit cards, compare personal loans and compare savings accounts!