A new month, a new Facebook-led protest against big banks. Protesters have declared December 11 “Balance Transfer Day” in an effort to get Americans to ditch their high-interest credit cards for cards with lower rates or zero percent teasers.
“[W]hy don’t we beat the banks at their own game and demand the same 0% interest rate that they receive from the federal government?” the protest’s organizers say on its Facebook page. “This can be achieved by transferring card balances from interest bearing accounts with large banks to 0% interest cards issued by credit unions and community banks.” But consumers might find this hard to accomplish, and it’s possible that the very big banks against which the movement is campaigning could be the unintended beneficiaries.
The movement’s organizers are correct about one thing: Although the cost for banks to borrow is rock-bottom and rates on loans like mortgages and car loans are at historic lows, credit card APRs are flirting with record highs and have hovered very close to 15% for the past several months. In a new study from the Consumer Financial Protection Bureau, 11% of roughly 5,000 credit card complaints were related to interest rates. As a result, issuers have found that offering 0% interest is a good marketing hook and regularly dangle as much as 24 months of 0% interest for new cardholders.
It can be a great deal — if you can get it. The first stumbling block is that you have to be approved for a card, which requires good credit. If your credit score is in the tank because you have huge credit card debts, banks might not be so eager to extend more credit to you.
Then there’s the issue of the balance transfer fee. These fees used to be fairly small and were capped regardless of the size of your transferred balance. Now, 3% is fairly standard across the board (although in recent weeks we’ve come across a couple of offers that don’t charge a fee for the transfer) and the amount generally isn’t capped.
Of course, the standard precautions apply when it comes to transferring a balance: Don’t close the old credit card, since that can ding your credit score. But don’t be tempted to rack up a new balance on that card and inflate your debt instead of paying it down. Work out your budget so that you can pay off the transferred balance before the end of the promotional period expires, since many of these cards have higher standard APRs than ones without low teaser rates.
There’s one other, uncomfortable catch: The best balance transfer offers — the ones that offer 0% for the longest amount of time or don’t charge that 3% transfer fee — may come from the same big banks consumers are being urged to ditch by Balance Transfer Day organizers.
“The sad reality is that out of the 1,000 credit card offers that Card Hub tracks, the one with the longest 0% APR on balance transfers is a Citibank card,” says Odysseas Papadimitriou, founder and CEO of card comparison site CardHub.com. “To our knowledge, there is no small bank balance transfer credit card with 0% for a period longer than 21 months.”
Consumers who don’t want to shuffle their balances from one big bank to another one have a couple of options. Papadimitriou says Card Hub’s credit card page doesn’t show all 1,000 card offers out there, but if you know the name of the small bank or credit union you’re interested in, you can type it into the search box to track down their offers. Another card comparison website, LowCards.com, does list all 1,000-plus current credit card offers, so consumers can scroll through and see which ones have low introductory APRs.
But Paul Weston, president of TCM Bank, part of the Independent Community Bankers of America, says consumers shouldn’t focus solely on the teaser rate. “The reason for moving to the local community bank is not for the 0%,” he says. “I would hate for them to be blinded by some feature — whatever the hook is.” He discourages people from searching for community banks far outside of the area where they live or work. A small local bank might be less interested in a credit card applicant who’s too far away to use any of the bank’s other services.