Fees the new battleground in the credit card market

As the market approaches saturation point in terms of 0% balance transfer deals MoneyExpert.com is predicting that transfer fees will prove to be the new battleground for providers.

Barclaycard fired the first shots by reducing the transfer fee on its OnePulse card from 3% to 2.5% whilst maintaining a competitive if not market leading 14 month 0% deal, and the price comparison website is predicting that other providers will soon follow suit.

Balance transfer fees have risen consistently in the last 18 months - the average fee on a 0% deal increasing from 1.7% in January 2007 to 2.4% now. With 75% of the market currently offering a 0% deal on balance transfers, however, providers are now looking for new incentives to pull in business, and lower transfer fees are a clear solution.

Card customers however need to think carefully before choosing a card simply on its lower transfer fee - it can still be worth using a card with a higher transfer fee if the zero per cent period lasts longer.

Sean Gardner, Director, MoneyExpert.com, said: "The best-buy tables have been dominated over the last couple of years by cards offering lengthy 0% balance transfer deals, but there inevitably comes a point when trumping the pack becomes impossible.

"Deals of around 15 months, from the likes of Virgin Money and Capital One, currently top the table, and it'll prove very difficult for other providers to better that. What's far more likely is for cards, such as the OnePulse, to start offering other incentives such as lower fees or cash back options."

Transferring a balance of £5,000 at 3% would cost £150 while at 2.5% the fee applied would equate to £125. However, if the card offered 15 months at 0% then to clear the balance in that period would require monthly payments of £333. With 14 months the required payments would be £357, so despite an initial saving of £25 you're monthly payments would be £24 higher.

The credit card market currently offers 182 products with 0% introductory balance transfer deals with periods varying from three to 15 months. Other deals, from the likes of First Direct, offer considerably longer introductory periods but with rates around 6%.

MoneyExpert.com is advising consumers to consider all elements of a credit card before switching. For those with large balances a reduced transfer fee may be most appropriate, but it is also important to consider the period for which the introductory rate lasts and the rate that will be applied when that period expires.