These transfers allow customers to pay off other debts like overdrafts with a lump sum, although they incur a transfer fee of around 4%.
Customers must also ensure they pay off the credit card balance within the 0% promotional period or risk incurring high interest on it.
While money transfer credit cards are useful, there are not that many of them around and customers may need a good credit rating to be considered.
How do money transfer credit cards work?
Some credit cards allow us to transfer money from the credit card into our current account. These are known as money transfer credit cards.
Money transfer cards are different to balance transfer credit cards because they allow us to move money into an everyday account rather than just from one credit card to another.
To put it another way:
- Money transfer credit cards allow us to transfer available money from a credit card into a current account
- Balance transfer credit cards allow us to transfer a balance from one credit card to another
So, although people sometimes use the terms interchangeably, there is a key difference between money transfer credit cards and balance transfer credit cards that will affect how customers can use the card.
There are also a couple of important points to understand before signing up to a money transfer credit card:
- Customers who request a money transfer will still need to repay the minimum each month or risk invalidating the credit agreement
- There will usually be a time limit on requesting the money transfer, so customers should make sure they know what this is
- Customers will only be able to request a money transfer for a set percentage of their credit limit (usually 90% to 95%) because the rest is set aside for any fees that emerge from the transfer or other card uses such as purchases or cash withdrawals
Read more about other credit card terms and charges that will apply to money transfer cards as well as other types of credit cards.
What are money transfer credit cards used for?
As money transfer credit cards can be used to transfer large amounts of money into a current account, they are useful for situations such as:
- Paying off expensive debts such as overdrafts and high-cost short-term loans
- Repaying a personal loan early to avoid high rates of interest
- Cash for a large household expense such as a new boiler or appliance
- Pay for goods or services that won't accept a personal credit card
Traditional credit cards might be able to make cash withdrawals, but these are usually charged at higher interest rates and can be prohibitively expensive, so money transfer credit cards with a 0% interest rate are a great alternative.
Are there any downsides?
One of the major points to be aware of with a money transfer credit card is that customers will lose their section 75 protections on purchases they make.
Section 75 is part of the Consumer Credit Act and means that credit card providers are equally liable with retailers if something goes wrong on purchases over £100.
Because we're moving money from the credit card to a current account, the link is broken and section 75 protection doesn't apply. This may be something to bear in mind if the money is going to be spent on a large purchase and a traditional credit card may be better for this purpose.
Other downsides to money transfer credit cards include:
- They are not generally good all-round credit cards and may have high interest rates on purchases (even if there is a 0% interest rate on the money transfer) and cash withdrawal rates are usually very high
- Customers will need to initiate the money transfer within 60 to 90 days of signing up for the card
- They could have lower credit limits than other types of credit cards
Ultimately, while money transfer credit cards have a specific purpose, they will not be suited to everyone's circumstances.
Fees with money transfer credit cards
There are three figures to be aware of when looking at money transfer credit cards:
- The transfer fee
- How long the 0% interest period lasts for
- What the interest rate is after this period
For many customers looking at money transfers, the transfer fee will be the most important element.
This fee is calculated as a percentage of the balance we want to move over, as the table below demonstrates:
|Transfer fee||£1,000 transfer||£2,000 transfer||£5,000 transfer|
Larger transfers require larger transfer fees, and it's usual to find money transfer credit cards with transfer fees around the 4% mark these days.
As for the length of the 0% period and the interest rate, these are important to understand because we should always try and clear the balance of the card within that 0% period. If we don't, we'll be paying the standard rate for the card - and that may bring up costs sharply.
Applying for a money transfer credit card
Money transfer credit cards are generally harder to get hold of than other types of credit cards, meaning many customers simply won't be accepted for one because lenders can choose their customers sparingly.
When searching for a money transfer credit card, consider the following questions:
- What application criteria is there and is the card geared towards customers with high credit scores?
- How much is the transfer fee and does it make it economically viable to transfer?
- Is the interest-free period long enough to clear the debt?
- What's the interest rate after the interest-free period?
The first question may be the stumbling block for many customers: these deals are often only available to customers with a high credit rating to begin with, meaning many of us won't be accepted.
It's vital that we don't apply for as many money transfer cards as we can find either.
Each time we make a firm application for a credit card, a footprint is left on our record. If we're unsuccessful in that credit attempt, other lenders can see it and that makes them less likely to give us a credit card.
Some credit card providers will let us run a "soft check" where we find out whether we're likely to be accepted before a harder credit check is carried out. These are useful, yet they aren't infallible and some customers are still rejected after an eligibility check suggests they will be accepted.
So, we should choose our credit card applications carefully and only apply for the cards we genuinely think we stand a good chance of being accepted for.
Read the criteria and consider checking whether your credit score is sufficient before making an online application.
How to do a money transfer
If we're accepted for a money transfer card, it's crucial that we follow the right steps to make the money transfer.
Remember, it must be done within a certain number of days of taking the card for the 0% interest rate to apply.
Most modern credit cards allow money transfers via an app or online services, although we might still have to call them in some cases.
We'll need the following information:
- The amount we wish to transfer (usually no more than 95% of the total credit limit but check the card terms for the specific figure)
- The account number and sort code for the UK bank or building society
The speed in which a money transfer is completed varies between providers, but things generally work quickly and we should see the cash in our account within a few working days.
One final point: money transfers don't require credit checks but they do require eligibility and security checks to ensure the money isn't being used for laundering or other dubious purposes. This may slow down the transfer in some cases.
Can you clear an overdraft with a credit card?
Money transfer credit cards are useful for clearing overdrafts because they have a 0% interest rate for a set period.
This means that we will not be accumulating interest on our overdraft debt and will have a certain number of months where we will not be accumulating interest on the money transfer card either. This gives us time to pay off the debt without acquiring more interest.
There are a couple of things to understand about trying to pay off an overdraft with a money transfer credit card:
- Customers should aim to pay off the money transfer credit card within the 0% interest period for maximum benefit
- Some money transfer credit cards may not have the credit limit customers need to clear the whole overdraft balance, but clearing most of it might also be useful
- Customers must pay the minimum repayment each month
Overdrafts have become more uneconomical in recent years, meaning customers stuck in a cycle of overdraft debt may benefit from a money transfer card that gives them space to pay off the overdraft for good.
Following tinkering with unarranged overdraft fees stretching back to 2011, the Financial Conduct Authority (FCA) decided to reform the system so that unarranged overdrafts were not more expensive than arranged overdrafts.
However, the unintended consequence of this was that every bank put their overdraft charges up to compensate for the lost revenue.
The FCA concluded these rate increases would not adversely impact most customers, yet there will be a significant number who feel trapped in an ongoing debt cycle who are struggling to pay much more off their overdraft than the interest payment.
Compounding this issue is the fact that overdraft providers are required to engage with customers if they remain in persistent debt for a prolonged period and try to help them bring their overdraft down.
These rules may be well-meaning, but they can lead some customers to feel under more pressure about their overdraft debt.
So, using a money transfer credit card to clear the overdraft debt and get a little breathing room on the interest could be useful for some customers.
However, it isn't a solution for everyone, and it's important to be honest with yourself about whether the debt can be paid off in full before the 0% period is up - if not, it reverts to an interest rate that may be higher than the overdraft.
If customers can't get a money transfer credit card and they still want to try and clear their overdraft down, another option is to move everyday purchases on to a different type of credit card: 0% purchase credit card.
There are more 0% purchase cards on the market and these:
- Have a 0% interest rate on purchases for a set period (not cash withdrawals or spending abroad)
- Should be cleared in full by the end of the 0% period for maximum benefit
- Require the minimum repayment to be paid each month
Using a 0% purchase card or a low-rate credit card for everyday spending while working to pay off an overdraft may not be ideal for all customers.
It requires discipline to avoid spending using both the overdraft and the credit card, and the interest rate after the 0% period can be as steep as an overdraft if it isn't cleared in time.
What is stoozing?
Some customers use credit cards to make money with a method called stoozing.
This can be done with a money transfer credit card where money is transferred to a savings account or by using a 0% purchase card for everyday spending in the way we discussed for bringing down an overdraft balance above.
Essentially, the process for stoozing with a money transfer card is as follows:
- A customer takes out a 0% money transfer credit card and transfers the maximum allowed into their current account
- They transfer that money into a high interest savings account to maximise earnings
- They continue to make the minimum repayment on their credit card
- Before the interest-free period is up, they pay off the remaining balance from the card and pocket any earnings that are left
Making money from a credit card like this is a nice idea, but there are obstacles to it working in practice these days:
- There aren't many high-interest savings accounts available with easy access, so returns are low and may not be worth the effort
- Stoozers often need an excellent credit rating to get started, meaning those who need to repair their credit rating will miss out
- Customers will have to be disciplined about their credit card use and ensure they're maximising their end returns
Even though banks use similar techniques to stoozing to make money themselves, it's a complicated process for individuals and doesn't seem economically viable for many in the current climate.
Summary: Rare but useful
Money transfer credit cards are not as common as they used to be, and some customers will struggle to find a card that's suitable for them.
Nevertheless, where they are available, they offer something different to other credit cards: the opportunity to get credit directly into a current account to pay off other debts or purchase something that couldn't be obtained with a credit card.
There are a few important things to remember about money transfer credit cards:
- You must undertake the money transfer within a certain number of days
- The card will come with a 0% interest-free period then revert to a higher rate
- Customers will need to pay a transfer fee, often around 4% of the total balance to be transferred
- It's usually possible to transfer between 90% and 95% of a credit limit to a current account using a money transfer card
Ultimately, while money transfer credit cards are a good option for some, other customers may struggle to find one that accepts them and might need to look at a personal loan paid into their current account instead.