A credit card war has erupted in the last few days with four new cards offering 42 months or more interest free on balance transfers and that’s before 2017 has even kicked off.
Barclaycard, nuba and Sainsbury’s Bank have all entered the fray and launched new 42 month offers whilst MBNA has pipped all three with a 43 month 0% balance transfer promo offer – the longest duration ever offered in the history of UK credit cards.
Not only do the new cards come with ultra-long interest free periods and competitive balance transfer fees, but business has become so cut throat that nuba, Barclaycard and MBNA are also offering £20 incentives for those who transfer debt from a competitor card.
| New credit card deals launched in the last week | |||
| Card provider | 0% BT duration | BT fee | Incentive |
| MBNA | 43 months | 3.29% | £20 cashback |
| Barclaycard | 42 months | 2.99% | £20 cashback |
| nuba | 42 months | 3.29% | £20 Amazon gift card |
| Sainsbury’s Bank | 42 months | 3.50% | None |
Research: Moneycomms.co.uk 29.12.2016
January is always a bumper month for balance transfer business as consumers action their New Year resolutions to sort their finances. In January 2016 for example there were 588,000 balance transfer transactions totalling more than £1.36 billion (BBA stats).
The balance transfer activity in January has grown steadily in recent years as follows:
| Month | Number of balance transfers | Total switched £ |
| January 2010 | 412,000 | £0.82 billion |
| January 2011 | 443,000 | £0.97 billion |
| January 2012 | 469,000 | £0.99 billion |
| January 2013 | 524,000 | £1.13 billion |
| January 2014 | 620,000 | £1.37 billion |
| January 2015 | 592,000 | £1.34 billion |
| January 2016 | 588,000 | £1.36 billion |
Source: British Bankers Association
The balance transfer market is huge with £27.4 billion worth of balances sitting on an interest free deal (Nov 2016 BBA) – and of course these number don’t take account of the pre and post-Christmas spending splurge.
The push for longer and longer 0% durations shows no signs of letting up with the average 0% term now at almost 22 months not far off double the 11.9 months this time five years ago.
With the total amount outstanding on credit cards up by £2.5 billion in the last 12 months and now at £63.1 billion you start to wonder how much longer this credit spree will last before lenders put the brakes on.
The potential interest savings for borrowers are huge as shown below, and the fact that card companies still seem to be able to make these 0% deals work is no doubt due in part to the number of people who ‘fall off the wagon’ by missing a payment or exceeding their limit and suddenly find themselves paying interest at 18.9% APR or more.
People may baulk at the thought of a 3% plus one off balance transfer fee, but as the table shows below it’s roughly the equivalent of 2 months’ worth of interest charges at an average 18.9% APR rate, so it makes perfect financial sense to switch.
| Balance | Monthly interest cost at 18.9% APR | One off cost of 3.29% BT fee |
| £2,000 | £32.10 | £65.80 |
| £5,000 | £80.26 | £164.50 |
| £8,000 | £128.41 | £263.20 |
| £12,000 | £192.62 | £394.80 |
Although there is often some negativity around long term 0% balance transfer offers, for people who have the financial discipline to manage their debts via this route, it can save a fortune in interest charges – just make sure you set up a direct debit to cover the minimum payment – that way you won’t forfeit your promotional deal if you forget to make your payment on time one month.
I’m sure there will be a an almost immediate reaction to the aggressive MBNA move from fierce rivals Halifax and Virgin Money, but wonder if 2017 will finally see the 0% card market reach its peak, particularly if inflation takes off and base rate is raised in the latter part of the year.