0% balance transfer deals begin to fade

Capital One has withdrawn its best-buy balance transfer credit card from the market, emphasising an on-going downward spiral in one of the industry's most popular sectors.

Although borrowers can turn to equally attractive offers from Barclaycard, First Direct and Virgin, Savvy credit card users hoping to transfer their debt from one card to another will find it increasingly difficult to do so in future.
Over the past year the overall number of 0% balance transfer deals has been cut back with 75% of firms now offering deals compared with 82% in October 2007. There were 103 such cards on the market a year ago, but only 87 remain today.

The introductory period of these cards has also been reduced: across the market the average introductory period has been reduced from 10.1 months to 9.5, according to price comparison website MoneyExpert.com.

In the past, many credit card users or so-called 'rate tarts' have used these extended 0% periods to transfer their existing debts at little cost. But with the number and length of these offers reduced, this is likely to become increasingly difficult.

It will also cut back on the process known as 'stoozing'. This is a way of making money by borrowing large amounts of cash on 0% credit card deals and then deposited the funds in a high-interest savings account. As the borrowed funds do not attract interest and if you do not spend any of it before the end of the 0% deal, you get to keep the accumulated interest for yourself.

If a customer was able to find consecutive 0% deals, they could avoid interest and earn money from stoozing indefinitely. However this is becoming increasingly difficult also as card providers tighten their lending criteria.

Sean Gardner, director of MoneyExpert.com, said: 'These figures should send a clear message to borrowers that the credit card merry-go-round is grinding to a halt. In the coming months, it's going to become increasingly difficult to refinance your debt at 0% interest.

'This trend away from extended balance transfer periods underlies a shift in the industry which is increasingly cautious about the people it lends to and is far more interested in the profitability of its customers. A year ago there were dozens of cards with overall APRs of little more than 10%, but today the most competitive cards offer rates of 16% or more.'

The situation of borrowers is not helped by the fact that the rate on authorised overdrafts is increasing. The interest charges on overdrafts has increased by an average of 1.35% since June this year, according to Mr Gardner. The average authorised overdraft now charges 13.06% compared with 11.71% in June despite the Bank of England cutting rates by 2% over that time period.

The balance transfer offer from Capital One, which was near the top of the best-buy tables earlier this year, offered 0% on balances until December 1, 2009.

Virgin Money currently offers the longest 0% balance transfer deal at 16 months, followed by the 0% offer until February 1, 2009 from Egg. Two other great offers come from Barclaycard OnePulse and Tesco Personal Finance Bonus with transfer periods of 14 months.