A “rate tart” is someone who switches from one zero per cent introductory credit card deal to another to avoid paying interest; however they may be set to become something of the past. Recently a number of the major credit card companies, including Egg, Barclays, the Royal Bank of Scotland and MBNA have introduced transfer charges for people who want to shift their outstanding credit card balances to a new card to take advantage of a zero per cent introductory rate.

Rate tarts will wait until the interest free period is about to expire on their current credit card, and then check through lists of providers to find another card they can switch to that has another 0% interest rate introductory period. The growth of financial comparison sites like uSwitch, moneynet ( http://www.moneynet.co.uk/ ) and moneyfacts (http://www.moneyfacts.co.uk/ ) has made this money saving behaviour easy to achieve.

The providers have effectively become victims of their own success. As more and more card companies began offering interest-free balance transfers, the card providers found that they had to offer longer and longer interest-free periods to win customers, which in turn meant less profit.

Analysts have recently estimated that rate tarts are currently costing lenders £1 billion a year.

Financial director Stuart Glendenning said, "Charging a fee on balance transfers is one way of recouping some losses, given it is impossible to make money lending at 0 per cent if the customer conducts no further transactions on the card.”

Professor Merlin Stone of Bristol Business School, comments: "Economically, some providers cannot sustain their current offers of zero per cent interest which means they may have to remove them or start introducing new charges to help reduce their losses.”

This is exactly what appears to be happening, Professor Stone stated, "Research shows that in 2003, none of the cards offering zero per cent APR interest on balance transfers applied charges for transferring balances compared to around 11 per cent that do today."

Perhaps in an effort to justify the reduction in 0% introductory period on credit cards, Patrick Muir, marketing director at Morgan Stanley Consumer Banking (http://www.morganstanleycard.co.uk/), said: "Our research suggests that cardholders are wising up to short-term deals, as the majority of those currently switching or planning to switch are not moving from one short-term offer to another.”

Only eight per cent of people are looking to change their credit card in the coming months, said investment bank Morgan Stanley, however Stuart Glendenning advises, "Whilst not all have gone down the fee route yet, my advice is simple: transfer your balance for free while you still can."

About the Author

Richard works in Edinburgh for a media company, occasionally writing for the personal finance blog Cashzilla ( http://cashzilla.blogspot.com/ ), and drinking too much coffee.