Money transfer cards enable their users to get the flexibility of a loan with their credit card.
Money transfer cards enable their users to get cash directly from credit card, which is paid into their bank account.
Most people are familiar with balance transfer credit cards, which have been amongst the most popular cards in the UK since the early 1990's. Balance transfer products enable their users to transfer an existing balance held on another credit card, to their new card, at a preferential rate for a fixed introductory period. Aggressive competition has resulted in most card issuers reducing the interest charged during the promotional balance transfer period to 0%. It has also led to dramatic reductions in the fees charged for transferring balances. Just a few years ago, balance transfer fees averaged around 3%, but fee-free transfers are now readily available.
Balance transfer products are incredibly useful, yet they only benefit those with an existing card balance. If you actively shop with your credit card, and always clear your monthly balance (as you ideally should), 0% transfers offer minimal benefit directly.
Of course, there are 0% options available to active shoppers.
You could get a 0% purchase credit card, which offers 0% interest on new purchases for a fixed period, or you could spend on an existing card and then transfer the balance you accrue. However, although using either of these methods means you'll continue to enjoy Section 75 protection for your credit card purchases (over £100), they are restrictive. Perhaps you want to buy a second-hand car privately, or you want to pay off a personal loan? In either of these circumstances, you won't be able to use a credit card directly - a traditional loan being the most common method for obtaining cash.
Money transfer cards offer a useful alternative in these scenarios, and bridge the functionality gap between balance transfers and loans. They allow you to access the 0% interest that balance transfer cardholders enjoy, while accessing credit as cash, as loan users do.
In many respects, money transfer cards work similarly to balance transfer cards. In fact, in many instances, they are the same products with additional functionality.
Once accepted for a money transfer card (like the ones featured above), the user requests a specific sum is transferred from their credit account to another account. In the case of money transfers, this is a UK current account, rather than another credit account, as it would be with a balance transfer.
As with (most) balance transfer products, users must pay a fee to their card issuer for arranging the transfer - the money transfer fee. Charges for money transfers tend to be slightly higher than the fees charged for balance transfers. However, as we will come to, even with these fees, money transfer products are a very competitive way to borrow cash.
Money transfer or loan?
Traditional loans have been with us for a long, long time. In fact, records of loans appear in documents from ancient Assyria and Babylonia! In the modern world, we tend to draw distinctions between credit cards and loans, which have more to do with their terms and conditions than the wider lending picture. In reality, credit cards are just a loan by another name.
So, if both products are loans, which is better? Well, this depends on your approach to money management. Loans offer more certainty, as payments are split over a defined number of months at fixed amounts. Credit cards, on the other hand, offer revolving credit, so only a small part of the balance is required to be repaid every month. Credit cards undoubtedly offer more flexibility, but this comes with a greater opportunity to get into financial difficulty if mismanaged. If you are concerned that you don't possess the discipline required to repay a credit card balance in full before the introductory period expires, then a loan may be the best solution for you. However, if you can manage your money effectively, a money transfer card can provide a far cheaper way of borrowing money.
The reason money transfer cards can be cheaper than loans is due to the way charges are applied to the respective products. With a traditional loan, customers are charged a rate of interest, expressed as an APR (Annual Percentage Rate). The APR is the amount of interest that is applied to a loan over one year. Money transfer cards offer 0% APR on the principal amount borrowed for a defined period, but they do charge a fee for arranging the transfer.
Assuming a loan APR and a money transfer fee were both 4% (which is not uncommon), many people would assume that these products cost an equivalent amount. However, there is a critical distinction. The money transfer fee is a one-off fee, while the 4% APR is a recurring charge for every year money is borrowed. Therefore, if you borrowed £3,000 over 3 years with a loan, your total repayments will amount to £3,188.52. Borrowing the same amount using a money transfer card will incur 4% fee, but this is charged once, so the total cost will be £3,000 + 4%, or £3,120 - saving £68.52 compared to a loan.
In fact, a loan APR would need to be around 1.5% less than the money transfer fee charged before it became the cheaper of the two alternatives (over 3 years). If you can set up a direct debit, and you don't add additional purchases to your card, a money transfer card will almost always be the cheaper form of borrowing.
Aside from money transfers, some cards offer other useful features. These tend to include 0% balance transfers, which can be useful if you have an existing balance you want to transfer (at the same time as accessing cash), as well as 0% on purchases.
Introductory 0% balance transfer periods typically match the money transfers (though not always), so these debts can be managed collectively. However, because introductory 0% purchases tend to expire before the money transfer elements, these debts require special consideration. Purchase debt normally reverts to a higher interest rate well before balance/money transfers do. Therefore, to avoid undermining the money saving benefit of your card, you should clear purchase debt before your promotional rate expires.
Some money transfer cards offer purchase rewards. Rewards can be welcome, but since they are only earned when using the card directly for purchases, not for purchases made with cash, their real value is questionable.
Likewise, store discounts, which often require the purchase to be made with the card, are of very little value to those who use their card for money transferring.
As with other balance transfer products, the eligibility criteria for money transfer cards is relatively high, especially if you are going to receive the advertised rate.
Card issuers are only legally obliged to offer their advertised rate to 51% of accepted customers. As such, those with a higher risk profile are routinely offered weaker 'down sell' propositions.
People with a limited understanding of credit cards can be tempted to decline these 'down sell' deals, as they are not what they applied for. Indeed in some circumstances, they are right to do so. However, before alternative terms are dismissed, applicants should remember that every application is registered on their credit file(s). In the short term, these marks reduce their appeal to other leaders and can make it more difficult to get credit. As such, people routinely dismiss products, only to later discover that they were the best/only option available.
To ensure your chances of a successful application are as high as possible, check your credit rating before you apply. Mistakes do occur that can harm your chances. Equally, anomalies can be explained with notes, which help increase your chances of being accepted.
Money transfer card considerations
Although money transfer cards offer a comparatively cheap way of borrowing, they are not without pitfalls. To maximise the benefit of your card, remember:
Money transfers must be arranged during a limited period, usually within 90 days of your account opening. If you try to complete a transfer after this period it will not be permitted, so only apply for a card when you know you'll need cash soon.
All cash is not equal
Money transfer cards offer the ability to obtain cash, but there is a process for getting these funds. If you try to get cash outside of this process (eg. you withdraw money from an ATM), the cash you obtain will be considered a 'cash advance' and will incur interest immediately (at a rate higher than the standard purchase rate APR).
Pay your minimums
Without 0% deals, credit cards are a costly way to borrow over the long term. It is therefore critical that you do not forfeit your preferential rate by missing your minimum payments (or underpaying what you owe).
Ideally, you should pay your card debt as you would a loan, dividing the balance over your introductory period and arranging a direct debit for equal instalments. This ensures your balance is cleared before interest reverts back to the standard APR.
Never exceed your credit limit
As with missing a monthly payment, if you exceed your credit limit, your promotional deal will be withdrawn (and you may incur other default fees).
Assuming you make your transfer request before the banks close (4 pm) transfers usually arrive on the next working day. Requests made over the weekend (and bank holidays) may take an extra day.
No. With normal credit card purchases, a direct link is established between the merchant and the supplier of credit. Under Section 75 of the Consumer Credit Act, credit card holders can seek redress from their lender if goods they purchase with credit are defective.
Using cash for purchases means no direct link is established, so Section 75 does not apply to purchases made using cash from a money transfer card.
That said, if you use your money transfer card itself to make a purchase (as opposed to the cash transferred from such a card), then you are indeed afforded the same protection as any other credit card.
No. You'll need to rebuild your credit rating if you want to get a money transfer card. Bad credit products offer cash advances, but the interest on these is very high, so steer well clear if you can!
Yes. However, interest rates remain depressed at the moment, so you're unlikely to see a good return for your efforts. Standard current accounts currently offer some of the best savings rates (amongst accounts offering government backed deposit protection), but they tend to restrict the amounts they'll pay interest on, so even these aren't going to help you 'stooze' effectively.
Of course, if you do hear of a government backed protected savings account that offers good interest, do let us know!
Every applicant has their credit limit set at the time they apply, and they differ based on financial circumstances. Once you know your credit limit, you can work out how much money you can have transferred. That's because card issuers limit the amount you can transfer to around 95% of your credit limit - check the specifics of your deal before planning to spend money you might not be able to withdraw.
Assuming your bank account gives you a debit card, this is exactly what a money transfer card enables you to do. You transfer cash into your bank account, which you can then use with your debit card, by bank transfer, or by paying with traditional cheques.