How do Aussie balance transfers compare to US and UK options?
From 0% p.a. introductory periods to balance transfer fees, revert rates and account costs, here’s how Australian balance transfer credit cards compare to what's on offer in the US and UK.
Balance transfer credit cards are designed to help you save on interest and pay down debt faster, making them a popular option on the credit card market. On average, just over half of Australian credit cards boast a 0% balance transfer offer, according to the finder database.
Balance transfer offers are also incredibly popular in other parts of the world, particularly the US and the UK. So we thought it would be interesting to see how our balance transfer credit cards compare to those offered the US and UK.
Rates, fees and offer details referenced in this article are correct as of 25 January 2018.
Credit card debt
The key reason balance transfer credit cards are so popular in Australia, the US and the UK comes down to our existing credit card debt. Based on Reserve Bank of Australia data for October 2017, our collective credit card debt was worth $51.2 billion – and $31.6 billion of this was accruing interest.
For the same time period, United States Federal Reserve Bank data shows that debt from “revolving credit” (which is mostly made up of cards) was US$1.11 trillion, or about AUD$1.38 trillion. In the UK, people owed £384 million (AUD$672 million) according to data from the Bank of England.
Even with the conversions and differences in types of data, it’s safe to say all credit card debt is eating into households in all three countries. That’s where balance transfer cards come into play.
Length of offer and balance transfer fees
On Australian balance transfer credit cards, you can currently get 0% p.a. for up to 30 months. The 0% p.a. introductory periods available in the US are slightly lower, with current offers giving you up to 21 months interest-free.
But by far the longest introductory period is in the UK, where you can get 0% p.a. for up to 38 months on an MNBA Platinum card. A key difference with this offer is that your credit score affects the 0% balance transfer period, so not everyone that gets approved will enjoy 38 months interest-free on their debt.
In terms of upfront costs, the first one to consider is the balance transfer fee. In Australia, this fee is typically 1% to 3% of the debt you move to the new card, but some cards won't charge the fee.
In the US, credit cards typically charge balance transfer fees that range from 3% and 5%, although some cards waive this fee for specific balance transfer promotions. A handful of UK balance transfer offers also currently charge up to 5%, although it’s more common for this fee to be around 2% to 3%.
Annual fees and revert rates
While balance transfer fees are currently more common in the US and UK markets, Australian cards are the most likely to charge an annual fee. Although introductory offers may give us a reduced or $0 annual fee in the first year, the majority of our credit cards come with this yearly cost. In comparison, it’s common for credit cards in the US and UK to have $0 annual fees.
Another major factor to consider when you’re looking at balance transfers (wherever you are in the world) is what interest rate is charged if you still have a balance transfer debt at the end of the introductory period. Known as the revert rate, in Australia, this is typically the same as either the standard purchase rate or cash advance rate. So, depending on the balance transfer card, you could end up paying around 12.99% p.a. to 21.99% p.a. if you have debt left over after the introductory period.
But credit cards in both the US and the UK have a different approach to interest rates, often adjusting them based on your credit score. So instead of a credit card listing one standard rate that would apply to your balance, it’s common to see several rate possibilities.
For example, a card could say the standard or revert rate will be “either 15.99%, 20.99% or 23.99% variable based on your credit score”. The better your credit score, the more likely you are to get assigned a lower standard variable interest rate.
This is because both the US and the UK lending systems use credit scores more than we do in Australia. In fact, some comparisons in these countries will show you credit cards based on a specific credit score range.
With Australian credit reporting set to become a lot more comprehensive from 1 July 2018, there’s a possibility we could head in a similar direction with credit cards and other types of loans. But for now, at least we have a clear picture of what interest rates will apply at the end of our balance transfer periods before we actually get approved for a card.