Posted on February 4, 2009 - by Martin Lee

Fund Transfer Interest Combinations

Making use of unsecured credit lines can be dangerous if one uses them to buy things he or she cannot afford. It can quickly snowball into a deadly spiral of multiple debts if left unwatched.

Nevertheless, they can be useful if someone uses them to pay off another debt which has a higher interest rate. The interest rate offered by the typical fund transfer promotion is much lower than that charged by a credit card, which can run up to 24% p.a.

But it might be difficult to decide which fund transfer promotion to take up. The different interest rates (and admin fees) offered can be confusing to the consumer. Sometimes, knowing what to ask can easily bring you a better deal.

Here’s an example. This morning, I received a call from a bank offering me a fund transfer with a fixed admin fee of 2.5% with 0% interest for 6 months. If you take a 6 month loan with an fixed interest of 2.5% with NO monthly payments, this is an effective interest rate of 5% p.a.

However, because there is a minimum payment to be made every month (usually 3% of outstanding amount), the effective interest works out to be about 5.4% p.a. For these kind of packages with a fixed admin fee, there is no incentive for paying off the loan earlier as the full interest would have already been charged up front. Read more…

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2. Know Your Interest?
3. Money Market Fund