This isn’t the good news that I want to share.
An article on USAToday says that Chase, the largest credit card issuers in the nation, is adding a $10 monthly fee,or $120 a year, to credit cards with low promotional interest rate. According the the article,
The change affects consumers with low promotional rates who have carried a large balance for more than two years and made little progress paying it off.
Which, I think, essentially describes a situation we call 0% balance transfer. If you are not familiar with the term, then what people like myself do with 0% balance transfer (BT) is that we apply for a credit card that offers 0% introductory APR for a period of time, then either transfer balances from high APR cards to the 0% APR card to save on interests, or simply deposit the money to a high-yield savings account like FNBO Direct to pocket the interests and pay off the remaining balance when the offer is due. The reason why 0% BT works is there’s no fee involved when transferring the balance. However, such offers are getting hard and hard to find as many issuers, such as Citibank, introduced balance transfer fees as high as 3% of the total transferred amount. When most banks only offer sub 3% APY for savings accounts, there isn’t much money you can make from balance transfer. And since there’s no interest for the balance, you only need to pay the monthly minimum while keeping most of the money in bank accounts to keep earning interests until the offer expires. Generally, you can get 0% APR for 12 months, but you can also get a low, but non-zero, APR for much longer time, some time a life time.
As you can see, the key of the 0% BT business is no fee. If you have to pay a fee, let it be a $10 monthly fee or 3% of the total amount, your profit from doing 0% BT will be eroded, or totally vanished, unless there’s a cap on the maximum amount of fees. So what Chase is doing now (BTW, Chase Freedom card is still offering 0% APY for 12 months), charging fees for low, long-term promotional rate, effectively killed the 0% BT, though there’s no word on whether the fee is also applicable to new accounts or only the existing ones.
Either way, it’s a bad news not only to existing card members, but also for potential customers.