Calculating the Best Balance Transfer Rates

Posted by Madison on March 9, 2011

I have a really old 0% balance transfer expiring soon. (A real one, as in no fee, no interest.) I’m in the process of debating whether or not to roll this balance over into a new offer.

When Discover launched their No Transfer Fee 0% Balance Transfer offer earlier this year, I wondered if it was any indication of the return of truly free 0% money.

After Discover let that offer expire last month, I started my search to determine what the next best balance transfer (cheapest) offer is right now.

Balance Transfer Fees

A reader Curt, sent me an email to point out that we all need to factor in the transfer fee:

“There isn’t any 0% money anymore, all cards charge a 3 to 4% transfer fee so that is your actual rate.”

Great point Curt. The term 0% is still widely used, but it’s not the whole picture! Let’s take a look at some of the 0% offers out there, and calculate the fees for each and determine the effective interest rates when you spread the fees over the life of the balance transfer.

Current Balance Transfer Offers

Citi Platinum Select – 18 Month Balance Transfer

  • The Citi card has an 18 months balance transfer and a 3% balance transfer fee.
  • Approximate annual effective interest rate: 2.11% – 2.29%.

Chase Freedom – 12 Month Balance Transfer & $100 Bonus Cash Back

  • The Chase offer is 0% balance transfers for 12 months and 3% balance transfer fee. Of course, there’s the $100 cash back offer for spending $500 in 3 months which you also have to account for.
  • Approximate annual effective interest rate (balance transfer only): 3.07% – 3.24%
  • Approximate annual effective interest rate (combined with $100 bonus): 2.22% – 2.33%

Effective Interest Rates

The easiest way to calculate what you are really paying, or what we’ll call the approximate annual effective interest rate, is to divide the fee by the number of years the balance transfer will last. However, since you have a declining balance over time, we have to increase the effective interest rate accordingly.

To calculate the approximate effective rates, I assumed minimum monthly payments between 1% – 2% of the outstanding balance, since all of my cards with outstanding balances fall in this range. (I’m a little annoyed, since the terms and conditions don’t state the minimum payment percents until you actually receive the cards.)

To keep it somewhat simple, I then divided the fee by the average monthly balance over the length of the balance transfer.

To calculate the possible effective rate for the Chase Freedom when you factor in the $100 cash back I assumed a $10,000 balance transfer (the effective interest rate goes down for smaller balance transfers and up for larger balance transfers). In addition, I factored in losing a month of balance transfer to make sure they don’t overlap.

Balance Transfer Offers By Mail

When I mentioned my evolving credit card arbitrage strategies, I noted that I think the best source of balance transfer offers is still offers in the mail from current cards.

I’m currently calculating all of the effective interest rates for the offers I received in the mail on current cards too.

Best Balance Transfer Option

My rule of thumb is generally to only consider offers under 3%. When you look at the bottom line, it’s a cheap source of leverage in my book.

However, with the possibility of locking in a mortgage on the vacation home at an attractive long term rate that is tax deductible, I have some additional factors that are going into my spreadsheet.

And don’t forget, there are risks with using balance transfer money and you need to be really organized to earn the effective interest rate. It’s not for everyone!

Are you still rolling over balance transfer money? Or are you waiting for another round of no fee balance transfer offers?

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Comments to Calculating the Best Balance Transfer Rates

  1. Good discussion of the various things you need to consider before doing a balance transfer.

    I’ve also seen people decrease their credit scores when they move balances from high limit cards to a new card. It’s not a big deal for most folks but if you’re applying for a mortgage and need a minimum score, it can hurt you just enough.


    • That’s an interesting phenomenon. I can only speculate that right after the balance transfer, there is a time frame where it appears that there are balances on both the new and old credit card. The only other explanation I can think of is the card owner did a balance transfer and then charged up a new balance on their old card.


      • Also remember that when you open a new card, your credit takes a small hit and then recovers. If you’re opening a new card with a balance transfer, you’ll get a little hit with the new card. Also, you usually shouldn’t close credit card accounts when/after you transfer, as this would hurt your credit score too, as you’d have lower total available credit and a higher credit card utilization.


  2. It’s sad that Discover doesn’t have their special offer anymore. I got in just the nick of time. It’s 0% APR for 12 months on purchases and balance transfers with 0% transfer fee. The bad thing for me is after filling out the application online, I was notified that I can’t transfer balances from another Discover card, which I happen to have. Overall, I feel Discover is one of the better cards; their agents seem to be located within the US, they’re polite, they’ve worked with me when I couldn’t afford to pay my minimum balance, their website is pretty clear and concise, and I don’t seem to be on hold very long whenever I’ve had to call them.


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