Credit Card Companies Make Millions From Balance Transfers

We have all done it, seen a better deal on credit card interest and transferred our balance to take advantage. Some offer zero % interest on the life of the transfer, some aren’t quite so generous.

Credit card providers are running a profit margin of around £500 million every year on balance transfer credit card deals and other introductory offers, says a leading high street building society.

The fat-profits are due to the providers charging variable rates for different types of spending and almost inevitably paying off the cheapest form of credit first.

On balance transfer credit card deals for instance, the sum transferred would be left until any additional purchases – at a higher rate of interest – had been paid for.

This costs the average card user £100 every year in additional interest charges, the firm has estimated.

"Many credit card providers use low introductory rates to lure people into opening an account," said the executive director at the building society.

"These offers can look very appealing, but when you scratch beneath the surface you discover that credit card holders often don't receive the full benefit of these low rates. Most providers apply repayments to the cheapest debt first making it more expensive for you and more profitable for them."

"We call on the industry to play fair by consumers and apply repayments to the most expensive debt first."

Nationwide, alongside Saga and Liverpool Victoria, is one of the few card providers who pay off more expensive credit first.

If you sign up to a new credit card, make sure you read the small print first and find out exactly what you are paying for. Interest calculations can be confusing and vary from card to card and company to company. This means it can be difficult to compare credit cards easily.

If you would like to knew more about credit cards why not ask AnswerBank Business and Finance.