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How to sidestep credit card fees

The perils of misusing a credit card

MBNA cardholders who are not on promotional rates recently saw balance transfer, money transfer, credit card cheque and ATM withdrawal fees go up from 4% (with a minimum £3 per transaction) to 5% (with a minimum £5 per transaction).

However, MBNA says that, as more than 90% of its customers carry out these transactions do so at promotional rates, the vast majority will pay the lower handling fees - for example a balance transfer fee of 2.99% to MBNAs new balance transfer card which offers 20 months' interest-fee on debt transferred from another card. You can read more about this deal here.

But regardless of the rate, if you use your credit cards wisely, you can avoid fees like these altogether. Here's a look at how credit card fees work and how to steer well clear of them.

Credit card fees

When you sign up for a credit card, you might just look at the purchase rate or balance transfer rate - but it's worth considering some of the card's other fees too.

Purchase rate:

This is the amount charged on regular purchases that you put on the card. Many credit card issuers offer promotional 0% periods on purchases, after which time the rate defaults to the standard purchase rate - currently averaging at around 17.31% APR (variable) according to the Bank of England figures.

The best credit card for purchases is from Marks & Spencer and offers 15 months interest-free on new spend on the card.

Balance transfer rate

This is the rate of interest you'll pay on a balance transferred from a different card. Again, many card issuers offer promotional 0% balance transfer rates which can be great for paying down the balance if you're currently on the standard 17.31% rate of interest.

Zero interest on balance transfers can last up to 22 months with Barclaycard Platinum Credit Card with Extended Balance Transfer.

Balance transfer fee

This is the amount charged for the privilege of transferring a balance from an old card to a new one. The typical transfer fee ranges from 2.5% to 3%, so transferring a £1,000 balance would incur a fee of between £25 and £30.

You can shop around for credit cards with low balance transfer fees here.

ATM withdrawal or cash advance fees

This fee - which goes by either name -is what's charged for using your credit card to withdraw money from a hole in the wall. As well as a one-off percentage fee per transaction, the cash you withdraw will also incur a whopping rate of interest. For example the APR currently charged on a withdrawal of £500 is 26.72%.

Money transfer fees

These are charged when you use a credit card to pay off an overdraft on your current account - a move that would clearly only make sense if the interest on your credit card was lower than that charged on your overdraft. Virgin Money is one of the few providers to offer money transfers.

Credit card cheque transactions

Some credit card issuers give their customers cheque books which can be used instead of the card itself. This will charge the cheque to your credit card account in the same way as your regular cheque book would be charged to your current account. And, as you might expect, credit card cheque transaction fees are also charged.

While balance transfer, money transfer, credit card cheque and ATM withdrawal fees have all gone up for MBNA customers who are not on promotional deals, it's unlikely you would ever need to encounter them in the first place.

For example, there is no sense in transferring an existing balance to an MBNA card and incurring the new fee of 5% (or even the previous one of 4%) if you are not on a 0% balance transfer deal, as the debt would be charged at MBNA's standard rate of interest. If you are within the promotional period - ie within 60 days of opening your account - the debt will be charged at 0% and you will pay a balance transfer fee of 2.99%.

An MBNA spokesperson said: "The vast majority of our customers won't notice any difference with the change as they generally don't make transactions such as balance transfers at standard rates of interest."

Avoiding fees altogether

The best thing to do is to avoid credit card fees altogether by following a few simple rules.

  • Don't use your credit card to withdraw cash from an ATM. The fees are often extraordinarily high and interest accrues from the date you take cash out, rather than the payment date.
  • If you're going to make a balance transfer, choose a card with a long promotional 0% period such as the Barclaycard Platinum Credit Card with Extended Balance Transfer.
  • The majority of credit card companies have now moved away from credit card cheques, but if you do have this facility - don't use it! These transactions are treated like ATM withdrawals, so there's a high initial fee and inflated interest charged from the day the cheque is used.
  • Avoid money transfers. If you want to pay off an overdraft on your current account, you're better looking at switching current accounts to one that offers a better rate of interest on overdrafts such as the Santander 123 Current Account.

For more tips on avoiding fees, read Jessica Bown's article, 'The perils of misusing your credit card'.

By Mark Hooson, MoneySupermarket.com

Data provided by moneysupermarket Best Buy Credit Cards - For Balance Transfers
The data displayed on this table was correct when published at 09:02 19/09/2014
Credit card provider Balance
Transfer
Purchases Representative
APR (Variable)
Card provider - Barclaycard

Barclaycard

Platinum Credit Card with Extended Balance Transfer

0.00%
34 months
2.99% fee
0.00%
6 months
18.90%

Representative Example:

If you spend £1200.00 at a purchase interest rate of 18.90% (variable) your Representative APR will be 18.90% (variable).

Apply

Card provider - Tesco Bank

Tesco Bank

Clubcard Credit Card for balance transfers

0.00%
33 months
2.90% fee
0.00%
3 months
18.90%

Representative Example:

If you spend £1200.00 at a purchase interest rate of 18.90% (variable) your Representative APR will be 18.90% (variable).

Apply

Card provider - Sainsbury's

Sainsbury's

Nectar Balance Transfer Credit Card

0.00%
33 months
3.00% fee
0.00%
6 months
18.90%

Representative Example:

If you spend £1200.00 at a purchase interest rate of 18.95% (variable) your Representative APR will be 18.90% (variable).

Apply

Data provided by moneysupermarket Best Buy Savings Accounts - For Easy Access
The data displayed on this table was correct when published at 09:02 19/09/2014
Savings account provider Interest
Rate (AER)
Min Investment Notice
Savings provider - Coventry Building Society

Coventry Building Society

PostSave Easy Access (2)

1.4% 500 none

Eligibility criteria:

Available to UK residents aged 16 or over.

Apply

Savings provider - Tesco Bank

Tesco Bank

Internet Saver

1.4% 1 none

Eligibility criteria:

Available to UK residents aged 18 or over.

Apply

Savings provider - Sainsbury's

Sainsbury's

eSaver Special

1.35% 1000 none

Eligibility criteria:

Available to UK residents aged 18 or over.

Apply

Savings provider - Virgin Money

Virgin Money

Virgin Easy Access E-Saver Issue 12

1.3% 1 none

Eligibility criteria:

Apply

Savings provider - GE Capital Direct

GE Capital Direct

GE Saver Issue 6

1.3% 500 none

Eligibility criteria:

Apply

Data provided by moneysupermarket Best Buy Current Accounts - For Rewards
The data displayed on this table was correct when published at 09:02 19/09/2014
Current account provider Reward Overdraft
Rate (EAR)
Current account provider - first direct

first direct

1st Account

£100 cashback when you switch 15.90

Apply

Current account provider - Santander

Santander

123 Current Account

Up to 3% cashback on household bills 0.00

Apply

Current account provider - Halifax

Halifax

Reward Current Account

Up to £160 in the 1st year 0.00

Apply

Data provided by moneysupermarket Best Buy Loans
The data displayed on this table was correct when published at 09:02 19/09/2014
Loan provider Headline Rate Payment per month Total charge for credit Total amount you repay
Loans provider - The Loans Engine

The Loans Engine

4.60% £297.50 £709.82 £10709.82

Representative Example:

If you borrow £10000.00 over 3 years at a Representative APR of 4.60% fixed and an annual interest rate of 4.60% you would pay the above.

Apply

Loans provider - Fluent Money

Fluent Money

4.70% £297.92 £725.26 £10725.26

Representative Example:

If you borrow £10000.00 over 3 years at a Representative APR of 4.70% fixed and an annual interest rate of 4.70% you would pay the above.

Apply

Loans provider - Ocean Finance

Ocean Finance

12.30% £330.51 £1898.20 £11898.20

Representative Example:

If you borrow £10000.00 over 3 years at a Representative APR of 12.30% fixed and an annual interest rate of 12.30% you would pay the above.

Apply

Data provided by moneysupermarket Best Buy Mortgages - For Remortgage
The data displayed on this table was correct when published at 09:02 19/09/2014
Mortgage provider Interest
Rate (AER)
Max LTV Duration
Mortgage provider - HSBC Discount 60% LTV

HSBC Discount 60% LTV

1.49% 60% For 2 years

Apply

Mortgage provider - HSBC Fixed 60% LTV

HSBC Fixed 60% LTV

1.49% 60% Until 30/11/2016

Apply

Mortgage provider - Tesco Bank Tracker 60% LTV

Tesco Bank Tracker 60% LTV

1.50% 60% Until 30/11/2016

Apply

Mortgage provider - Skipton Building Society Discount 60% LTV

Skipton Building Society Discount 60% LTV

1.59% 60% For 2 years

Apply

Mortgage provider - Virgin Money Tracker 70% LTV

Virgin Money Tracker 70% LTV

1.65% 70% Until 01/12/2016

Apply

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