Ta-ta, Teaser Rates
By Dayana Yochim (TMF School)
June 4, 2003
The market has hit the bottom. Yes, you heard us correctly. Though we Fools aren't ones to make market predictions, this is a call about which we're pretty confident.
You know those 0% balance transfer rates -- called "teaser rates" in the lending industry -- that have been clogging your mailbox for the past few years? They're about to become extinct. The full-throttle credit card interest-rate war is coming to its inevitable end.
Recently Citigroup (NYSE: C), the country's largest card issuer, announced that it will rely less on low-interest rate offers to woo new credit card customers. Mark our words, Nos. 2 and 3 in the industry -- MBNA (NYSE: KRB) and Bank One (NYSE: ONE) -- will soon follow suit.
Blame their reticence for continuing to offer low, low teaser rates on our savvy use of them. What was once a tool to lure new customers -- and keep them -- has backfired on the big banks. Consumers now commonly use 0% balance transfers to pay down their loans, then casually toss the card aside once the rate expires to take advantage of the next lender's teaser. Yeah, we encouraged that behavior, too. Sorry about that, Citigroup.
What's more, most of the outstanding balances on credit cards happen to sit on these low-interest rate cards, putting banks in the business of handing out free loans. Where's the profit in that?
Exactly.
We noticed interest rates starting to creep up around January. Now there's a proliferation of teaser rates in the 2% to 3.5% range. If you're lucky, you can find a 1.9% balance transfer rate that lasts nine months to a year.
Even our own six-month 0% balance transfer offer on The Motley Fool Visa Card (through MBNA) can't last forever, but we can guarantee that the sweet deal will stand through August. After that, MBNA, like all other credit card companies, will review its pricing on a monthly basis.
Don't worry, we'll be rooting for an extension on our 0% deal, and hope that you find the other rewards of carrying a Fool card enough to keep one in your wallet. But beware if you currently carry a balance on your credit card. You might want to snap up that 0% offer sooner rather than too late after the teaser-rate market completely bottoms out.
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