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(this is a part 2 of “Balancing act: Credit card balance transfer” feature stoty)

Before we start the search for the best balance transfer deal in town, it is important to always keep in mind the 5 important considerations before you decided to take the balance transfer plunge. Here is a quick recap from Part 1:

1. Understand the payment priority - where is you payment go first. Do “clean” your card before you make any balance transfer and stop using the card until the balance transfer is fully settled.
2. Understand the different of combined and separate account
3. Watch over limit when processing fees are added in
4. Mark billing date to avoid late payment charge
5. Be smart - look beyond just interest rate. Special or low interest rate is not the deciding factor; repayment period must take into consideration.

Below are the various fees and requirements for balance transfer (actual terms & conditions vary by banks, from time to time):

Processing fee. This is the standard charge ranging from RM10 - 80 depending on the banks and promotion period.

• Late payment fee. 1% of the minimum repayment amount due or RM5, or whichever is higher.
• Early settlement fee. The average early settlement fee is RM100
• Minimum & maximum transfer amount. Most banks set a minimum transfer amount of RM1,000, and maximum capped at 80% of card limit. Once an amount have been transferred, the card limit will be adjusted down accordingly and cash advanced will not be allowed until the total amount is fully pay off.
• Minimum monthly payment. Minimum monthly payment is 5% of the balance transfer amount or RM50 whichever is higher.

The deal : The longest repayment, the highest and the most flexible

One thing for sure, irrespective of repayment period, the balance transfer rate is much lower than the standard 18% p.a. In general, the rate is below 10% p.a (current BLR is 6.75%). Usually the best interest rate can be found on repayment period not more than 6 months. For example, AmBank & MayBank offers a 0% interest for 3 months.It is also no secret that banks with smaller credit card base are more eager to offer super low promotion rate to expand their market share. The opposite side is also true - banks that have larger credit card base have rather dull offering.

To stand out from the competitions and moving away from the increasingly commodified balance transfer progarmme, banks are now start moving away from just competing on interest rate alone. In fact, banks seem to prefer packaging their balance transfer programme along the longest, the highest and the most flexible platform: RHB Banks offers the longest repayment period up to 36 months, and it also has the most number of repayment packages; Instead of charging interet rate, Public Bank now charges ‘handling fee.’

Here is a “snap shot” on various Balance Transfer plans offered. For latest rate promotions, it is always worthwhile to check with respective banks.

Credit card balance transfer review (selected banks only)

AmBank
Am Bank rates are probably the most competitive in the market now (as review in Nov’06). It is the one of the two bank reviewed that offers 0% interest for 3 months (another one is Maybank). At 4,99% p.a., It 6 months rate is also one of the best. For repayment periods longer than 6 months, it rates are on par with others banks.

In total, It has 4 plans starting from 3 to 24 months. Processing fee is RM20, neither the lowest nor the highest. Early settlement fee is RM100. Combined account. Another point worth mentioning was the service received from the call centre. Am Bank is the only bank that takes extra efforts to voluntary explained how the payment order works and what are the consequences. Thank you, AmBank.

CitiBank, HSBC, Standard Charted Bank – Maximum 12 months.
Being the top 3 largest credit card issuer in the country, balance transfer packages from these 3 foreign banks are largely uninteresting and undifferentiated. Available repayment periods are 6, 9 and 12 months with the interest rate ranging from 4.99% p.a. to 7.2% p.a. For the 6 months repayment period, Citibank is the most attractive at 4.99% p.a., follows by HSBC at 6.00% p.a., and SCBank at 7.2% p.a. respectively. All 3 banks offers good call center service but seldom go beyond the product selling points. HSBC is the most aggressive as the call centre also double as sales center.

RHB Bank – Longest repayment period but not necessary the lowest cost
With 6-repayment plans, RHB Bank offers the most choices with a repayment period stretching as long as 36 months. The rate for the 36 months plans are lower than most of the banks, however there is a caveat – to enjoy the 36 months ‘holiday,’ you have to apply for a minimum amount of RM5,000. As explained in Part 1, lower rate does not mean lower cost.

UOB Bank – 24 months multi tier interest rate.
UOB has a slightly different plan from the rest. Strictly speaking it only has one plan – 24 months repayment plan but with 3 different interest rate tier through the repayment period. The multi tier interest rate is structured either heavy up-front loading or heavy back-end loading. Such features may help one to manage his cash flow better.

To make comparison simple, the weighted interest rate per annum for the 3 tiers are 12.75% (back loaded), 7.8% (fixed rate) and 5.78% (front loaded) respectively.

Public Bank – Fixed installment
Unlike others , Public bank charges handling fee based on amount of balance transferred, Ranging from 2 to 8%. The handling fee is immediately incorporated into the amount transferred and is payable in a fixed monthly installment fashion. Since the fee is incorporated directly to the transferred amount, it is important to watch out for the ‘over limit’ penalty. With RM2,000 for 6 months, RM3,000 for 12 months ,and RM4,000 for 24 months, the interest equivalent is equals to 4%, 6% and 8% respectively.

Summary

When shopping for the best balance transferred plan available in the market, it pays to look beyond the interest rate and evaluate the total cost by taking into consideration how repayment period could affect the total cost. Needless to say, the longer the repayment period is, the more you pay. Equally important is a separate account is a much better choice that a combine account (refer to Part 1 for detail information)

Which balance transfer plan is the best really depends on total outstanding amount and repayment ability. The good guide is to transfer a fraction of your outstanding amount based to a short repayment period plan such as those 3 or 6 months plan to take advantage of the low interest rate. After the payment is fully settled, do another round of transfer again until the whole amount is pay off. The advantage of doing so is to force you to settle your credit card without affecting your cash flow. Of course the down side is you still has to pay 18% p.a., for the remaining balance that has not been transferred, as well as incur more on processing fees (You can do a quick simulation to see if such efforts pay-off, I reckon it will). I am therefore favour AmBank’s.
Use it wisely, credit card balance transfer could be the best reward programme you ever have from your credit card company.