Are Those Temporary Great Credit Card Rates Worth It?

The spring wave of special temporary rate offers from credit card issuers has sprung.

But, as I keep saying, what happens in the US comes to Canada – and here’s another example of that. To transfer any balances to that cool temporary rate now comes with a fee. You’ll now pay at least a one percent transfer fee to take advantage of the special rate offer.

The one I have in front of me is from the Royal and from Scotia. The Scotia one is a 1% six month rate offer. But you have see the little asterisk and read down on page two of the fine print. You’ll pay a 1% fee for this temporary cool rate.

That 1% is enough of a fee for them to still be profitable, since banks borrow money at less than 1.5%, and I would suggest it’s not much of a deal for you.

This Scotia basic card has a 12% rate – it used to be 9.9% and they jumped it 20% when rates are still at the lowest ever – but that’s another story.

If you transfer $5,000 onto this card, the 1% six month rate will add that fee of $50. So you’re really paying a 4% effective rate: 1% interest on $5,000 anyway, and a 1% fee on top of that. If you transfer $8,000 onto the card you’re paying a total rate that’s actually 3%.

By the way, and this is something most people never realize, the cool rate is only on new transfer balances, and not on your existing balance. The only way to get the cool rate on your whole balance is to pay off the current amount in full, wait a day for it to be processed, then transfer the entire balance back, but now adding that 1% fee.

Whether the saving of a few hundred dollars is worth it is up to you. If you use it, the card issuer has won already. They’re still profitable and have accomplished their number one goal of getting your balance way up there.

What are the odds, though, that you’ll pay off this huge balance inside the six months, before the rate goes back up to the 12% or 20%? According to studies, it’s less than a quarter of all people. Then it’s a double win for the card issuer because you’re right back to the full rate the day after the temporary offer. At that point the shell game has to start again, if you can find another rate offer.

Instead of saving a few hundred dollars, there’s a guaranteed way to pay zero percent interest: Pay the current balance off and don’t spend the time and energy in transfers. You’re just kidding yourself that you’re making progress – you’re not. You’re moving your debt from one place to another. Sure, it’s a temporary interest saving, but if you spend that same time and energy just focusing on paying off your balance, you’ll be way ahead of the game for the long term.

And by the way: US transfer fees to take advantage of temporary rates are now up to 5%. What do you want to be it’ll be that amount in Canada inside the next year or two?

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