More credit cards charging to transfer balances

An increasing number of credit card providers are now charging customers for "zero" per cent balance transfers, experts are warning.

Last month Tesco Personal Finance joined the list of card providers that levy a fee for transferring balances onto their card, and this list is set to grow.

"This time last year credit card companies were clambering for customers to transfer their debt. At this time charges for balance transfers only affected a few cards. Now there are an increasing number of providers in the market going down this route," said Samantha Owens, of financial comparison service Moneyfacts.

Peter Gerrard, from moneysupermarket.com, added: "Whilst the zero per cent deals on offer have been great for consumers, the question remains of how far providers can go in offering ever-longer zero per cent deals. The longer the period, the harder it is to make a profit."

Moneyfacts points out that when interest-free balance transfers were introduced, credit card companies hoped consumers would maintain a balance on their credit cards and ultimately pay interest when their introductory period was up.

But now it seems that consumers have become more financially aware and are shifting debts when their deal expires.

Moneysupermarket.com's Mr Gerrard noted: "The move by Tesco further proves that the days of long zero per cent balance transfer deals without a fee could be numbered as all providers will be looking at ways to avoid losses accrued from customers that frequently 'churn' their debt from one card to another without using the card for purchases."

However, around 40 per cent of people with interest-free balance transfers do not manage to pay off or switch their balance to new cards before the interest-free period ends.

"It is easy to be attracted to a zero per cent credit card offer but it is important to remember that the interest-free period is usually only available for a limited time. After this period, the consumer is charged interest at a much higher rate," said Nick White, of product switching website uSwitch.com.

uSwitch points forgetful consumers to cards with a low rate of interest for the lifetime of the balance, such as American Express' 4.9 per cent offer.

Additionally, many lenders make sure any payments a customer makes are used to pay off the balances with the lowest rate of interest, such as a zero per cent balance transfer, meaning customers continue to be charged interest on more costly debts.

But by paying attention to small print, consumers can avoid these pitfalls. Nationwide is among the lenders that pays off the most expensive part of a customer's balance first, while lenders such as Capital One, Virgin, and Egg do not charge a fee to transfer credit card balances to a zero per cent deal.