0% Credit Cards are here to stay

The headlines have been full of stories of the death of 0% credit cards over the past few weeks.

"Credit Card Switchers Cost Banks £1 billion!"

So why have these stories materialised?

It's been an age old tactics for newspapers to roll out scare story after scare story. The more shocking things are (or appear to be) the more papers they sell. So doom and gloom fill the pages of our weekly papers and recently 0% credit cards have come in for the rap.

They can't make it up though can they?

Well, probably not and there are a few people out there willing to provide quotes and information sounding the death knell for 0% credit cards. If we look at the quote above as an example. An independent report commissioned by Capital One said credit card switching costs companies a billion a year (that much is certainly true), more card companies are introducing balance transfer fees (definitely true), and what people really want is low flat rate cards (no kidding sherlock!).

It's worth bearing in mind however that Capital One are currently investing a fair bit of money in promoting their own flat rate cards so it's hardly suprising that their own report comes out in favour of them.

So the facts aren't wrong but as usual the spin put on those facts can generate many stories along very different lines. Look at the marketplace for 0% balance credit cards. For the last couple of years consistently over 30 cards have offered 0% balance deals and there's no sign of this stopping.

What about the billion pounds per year costs?

Ok, so credit card switching may cost companies alot of money each year but you have to ask how much they're making by offering 0% credit cards in the first place. If you know how to play the system and regularly switch your credit cards to the best value provider then you will certainly cost those companies money, but lets be honest here, how many people take the time to research the best value credit cards and make the switch? We're talking a minority of people who bother to hunt down the best credit card deals.

Think about the logic here. Most 0% offers are followed by around 16% interest. This means for a bank to recoup the UK base rate of interest, 3 months of 0% is regained by one month at full charge. So if a 0% card lasts nine months, but you forget to move it for another three, all the gain of the interest free period is lost.

Most people don't switch their credit cards

It saddens me to say but most people don't switch credit cards once their 0% period is up. You only have to look at the vast profits made by the credit card companies to see that. The money made out of those that choose not to switch far outweighs the costs incurred by those that do switch credit cards frequently.

So what can you do?

Despite most credit cards charging a balance transfer fee it is still wise to change credit cards once your 0% period is up. Think of the facts. If you transfer £1,000 at 2% then you're charged £20 to switch credit cards. Most credit cards cap the balance transfer fee at £50 so the costs aren't huge compared to the potential savings.

If you can borrow 0% for 9 months paying just a 2% fee, that's still better than paying a 15% standard rate, and is also still better than paying a standard rate of 6.9%.

The crux of the matter

This is what it all boils down to. Card companies need customers, and 0% offers are still the most powerful tool in their sales arsenal. If you're not offering 0% you won't gain customers.

Therefore, in order not to lose competitive advantage, the industry has little choice in the foreseeable future but to continue to perpetuate 0% cards and tarts are safe for now!

See our credit card best buy table for some of the best deals currently on the market.

BW