Balance And Money Transfer Credit Cards: What Are They?

There are hundreds of different credit cards out there, all with different interest rates and features like interest free periods, balance transfer offers and even loyalty points. With so many options out there, it’s important that you understand all the different features available so that you can choose a card that best suits your needs. In this guide, we’re looking at the difference between balance transfer credit cards and money transfer credit cards, so you can decide which, if either, the better choice is for you.

Is there a difference between balance transfer and money transfer credit cards?

On the surface of it, balance transfer credit cards and money transfer credit cards sound like they could easily be different names for the same thing. Even though they’re both credit cards and both allow you to move money between accounts, the devil is in the detail, and sets out the crucial differences between the two.

Let’s look at balance transfer credit cards first.                                                                     

A balance transfer credit card allows you to take the balance from an old credit card and move – or transfer – it to your new credit card. People often do this when the new card comes with a cheaper interest rate or an interest free period on balance transfers, enabling them to pay their balance off more quickly and cheaply.

Let’s say for example that you owe £5,000 on a credit card that has an interest rate of 18.9% APR, and you’re paying £250 towards it each month to clear it in two years. If you took out new credit card with the same APR, but a promotional offer of 2 years at 0% interest on balance transfers, you’d repay your full balance four months earlier, and you’d save almost £1,000 in interest you would have paid if you’d stuck with your original card.

What are the advantages of balance transfer credit cards?

The main advantage of balance transfer credit cards is the 0% interest periods they often come with that allow people to save money on interest while they repay their credit card debt.

The other advantage of balance transfer credit cards is that you can transfer the balance of more than one credit card to the new card, as long as your transfers don’t take you over the credit limit you have on your new card. This can be useful if you have small balances on a number of cards, as you can consolidate them to make them easier to keep track of, and save money on interest as you make your repayments.

What to watch out for with balance transfer credit cards

There are three key things to watch out for with balance transfer credit cards:

1. Transfer fees – you can usually expect to pay 2-3% of the original card balance for each transfer you make. The card provider may expect you to pay the transfer fee up front, or add it to your balance. Make sure you know which they are doing and factor it into your repayment plans.
2. Purchase interest rates – just because your new card is interest free for balance transfers doesn’t mean it’ll also be interest free if you put any new purchases on your card. If you plan to use your card for spending as well as balance transfers, make sure that you know what interest you’ll be charged as it may be different and higher, and that you don’t exceed your credit limit.
3. Promotional interest periods ending – with any credit card that comes with a promotional interest rate, it’s wise to make a note for yourself of when that rate ends. This way you won’t be caught out if the credit card provider doesn’t send you a reminder, or if you miss it. If you haven’t repaid the full balance of your card by the time any 0% interest offer ends, interest will be applied to the balance you have remaining. This means it will take longer and cost you more to pay back what you borrowed.

OK, so what about money transfer credit cards?

A money transfer credit card allows you to pay money from your available credit card limit straight into your bank account. Like balance transfer credit cards, many people use a money transfer credit card to avoid paying more than they need to in interest and charges. They are typically used to pay for things you wouldn’t ordinarily put on your credit card. For example, a money transfer credit card can help to bridge the gap if you find you have a direct debit due to come out of your account and not enough money to cover it without dipping into an expensive unauthorised overdraft.

What are the advantages of money transfer credit cards?                                                               

Like balance transfer credit cards, the main advantage of money transfer credit cards is the 0% interest that they often come with for a set amount of time. This enables you to transfer money to cover your needs and repay it later, without having to worry about high – or any – interest charges.

Transferring money is quick, too: usually, once you decide to transfer money from your credit card, it’ll be in your bank account the next day.

Try to think of a 0% money transfer credit card as like a loan that needs to be repaid in full by the end of the 0% interest period. If you haven’t repaid the balance of your money transfer card by the end of the 0% interest period, then interest will start to be applied and it’ll both take longer and cost more for you to repay what you borrowed.

What to watch out for with money transfer credit cards

Like balance transfer credit cards, there are a few things to watch out for with money transfer credit cards:

1. Money transfer fees – money transfers you make may be interest free for a set period of time, but the card provider may still charge a fee for each transfer you make. This fee will usually be between 3 and 4%
2. Fees for other uses of your card – in particular, if you use your card to withdraw cash from an ATM. This is notoriously expensive to do with a credit card, so if in doubt transfer the money to your bank account and withdraw it from there with your debit card. It’s also important to be aware of the fees and interest payable for other things you may be able to do with your card, such as make purchases or balance transfers.
3. Promotional rates ending – as with balance transfer cards, make sure you make a note of when any promotional rates you get with your money transfer credit card are due to end. If the card provider doesn’t send you a reminder, or if you miss it, then you’re less likely to forget if it’s already in your calendar. Remember, if you still have a balance on your card when your promotional rate ends, interest will start to be applied and so it’ll take longer and cost more to pay the balance off.

General tips for using balance and money transfer credit cards

• Borrow as little as possible – regardless of the credit limit your provider gives to you, try to spend as little as possible on your credit card that you won’t repay in full when you get your statement. The best way to use a balance or money transfer credit card is to treat it like a loan that must be repaid by the end of the promotional interest period, and avoid using the card for other spending.
• Make sure you repay the balance before the end of the promotional rate – to make sure your new transfer credit card saves you money, then you should always try and to repay the full balance before the promotional interest rate ends. Take your total balance and divide it by the number of months you have interest free to work out what your monthly payment should be in order to do this.
• Always pay more than the monthly minimum payment – even if you can’t afford the monthly payments needed to pay your balance off before the end of the promotional rate, it’s important that you still make at least the minimum payment, on time and in full every month, and pay more than the minimum if you can. If you miss a payment or make it late, then you may lose your promotional interest rate and be charged a late payment fee by your card provider.