Here’s how to inject new cash into your current account without paying any interest. If your current account is overdrawn with approval and you’re within your credit limit, then you will usually pay interest on this debt.
Get back in the black
While some bank accounts provide interest-free buffers to those going overdrawn, a larger overdraft will normally incur arrangement and renewal fees, as well as interest. In fact, the average rate of interest for an approved overdraft is over 18% a year, which works out at almost 1.5% a month.
Even worse, if you ‘go into the red’ without permission by running up an unauthorised or unapproved overdraft, then the charges go through the roof. In this scenario, you could be charged up to £35 for each payment that increases your borrowing or is rejected, plus an interest rate in excess of 30% APR. Ouch!
If you’re in the red, then the best thing to do is to get back in the black by paying off your overdraft as soon as possible. However, if you can’t do this within a reasonable time, then one low-cost option that could save you money is using a ’0% money transfer’.
What is a money transfer?
Quite simply, a money transfer is a way of using interest-free credit from a credit card to boost the balance of your current account. In effect, you borrow at 0% on a credit card by transferring these funds directly into your bank account. By doing this, you can pay off an expensive overdraft and avoid paying any interest at all for up to 20 months.
However, there is a catch, because all money transfers from credit cards to current accounts incur a transfer fee. Typically, this upfront fee comes to 4% of the amount transferred, which equals £20 for every £500 transferred.
When compared with the cost of running an unapproved or even an approved overdraft, this 4% fee can be well worth paying – especially for very long 0% deals.
Nine nifty money transfers
Right now, there are nine money transfers with 0% deals lasting for a year or more. Here they are, from longest to shortest deal:
|MBNA Credit Card||4%||20||16.9%|
|Virgin Balance Transfer Card||4%||20||16.8%|
|AA Balance Transfer Card||4%||16||17.9%|
|Marks & Spencer||1%||15||15.9%|
|Post Office Platinum||2.98%||14||16.9%|
|AA Rewards Card||4%||12||16.9%|
|bmi American Express||4%||12||16.9%|
As you can see, seven of these credit cards charge fees of 4% for money transfers lasting for between 12 and 20 months. The Post Office charges 2.98% for a 14-month deal. Buying sterling travellers’ cheques though M&S Travel Money and depositing these into your current account will get you 15 months of interest-free credit for a 1% fee.
Of course, the best way to compare these money transfers is to spread the transfer fee over the life of the 0% deal. Here is each fee, worked out on a monthly basis, with all nine money transfers ranked from cheapest to most expensive:
|Marks & Spencer||0.067%|
|MBNA Credit Card||0.200%|
|Virgin Balance Transfer Card||0.200%|
|Post Office Platinum||0.213%|
|AA Balance Transfer Card 0.250%||0.250%|
|AA Rewards Card||0.333%|
|bmi American Express||0.333%|
As you can see, the cheapest money transfer comes from M&S, as its fee works out at under 0.07% a month. Two cards charge 0.2% a month, three charge between 0.213% and 0.267% a month, while the remaining three money transfers cost 0.333% a month. So, M&S is our winner, but let’s give all of the top six a round of applause for value!
Three rules to follow
To play the money-transfer game and win, please remember these three rules:
1. Be sure to pay off any money transfer in full just before the 0% deal ends. Otherwise, you’ll start paying interest at rates ranging from 15.9% to 17.9% APR.
2. Always pay at least the minimum monthly repayment to your card by direct debit, or any 0% transfers could be cancelled due to late payment.
3. Never use these cards to withdraw cash directly from ATMs (cash machines). Cash withdrawals do not count as 0% transfers, so their interest rates and fees are sky-high.
In summary, play your cards right and you could save hundreds of pounds by using money transfers. Therefore, why put up with a costly overdraft when you can borrow interest-free on plastic?