The Rate Tart

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In 2000 online bank Egg introduced balance transfer deals to the UK. The initial offer was for six months 0% interest on balances they transferred from another credit card.

The feature was so popular that before long other cardholders were forced to offer balance transfer deals of ever increasing lengths to have any hope of attracting new customers.

But this is where the law of unintended consequences comes in. With so many cards offering 0% deals, savvy consumers realised they could become serial balance transferors, moving their debt to a new card as the 0% period expires?

And so the rate tart was born..

People began to systematically switch their balances from card to card, in effect obtaining an interest free loan courtesy of the credit card industry.

In May 2005, Egg announced that all balance transfers would now attract a 'handling fee' of 2% of the amount transferred. The charge would be capped at £50. Other card issuers quickly followed suit, and now most balance transfer deals have such a charge.

But still this was not enough to put off the growing army of rate tarts and in time the cap on the handling fee was removed by most credit card issuers. By 2006 financial journalists were predicting the end of balance transfer deals as it was felt that the costs were becoming unsustainable.

But as of the time of writing there is no sign of this happening. In fact quite the opposite.

Consumer now appear to have more choice than ever. With 15 month 0% interest offers, Low Rate Life of Balance Transfer deals and even a few cards still offering fee free balance transfers , there really is something for everyone.