Millions of Egg cardholders run the risk of falling through an expensive trap door in the company's ‘Anniversary' offer. Yet this deal is a sneaky loophole, which bolts up that trap door, allowing new and existing customers to repeatedly enjoy 0% interest year after year, whilst protecting their credit score.
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| A burnt egg? |
Egg* has finally killed off its former reputation as the 'white knight' of the credit card world. Egg launched in 1999 with 8.9% interest and paying 1% cashback on all spending, yet now charges 16.9%, while base rates have dropped during the same period.
Its previously competitive cashback is now negligible; it pays a disgustingly tiny 0.1%. Anybody using Egg for cashback should ditch their cards immediately, you can get up to 3% cashback with the best cards (read the full Best Cashback Cards article).
Which card are we talking about?
Egg offers two card products; by far the most common is its original credit card, and it's this I'm talking about in this article. The other is the specifically branded, much newer Egg Money card. If you have that, it will clearly say 'Egg Money' on it, and this article isn't relevant to you.
| The anniversary offer |
Egg's ‘anniversary balance transfer offer' promises that in May 2009 and 2010 customers may transfer debts from other cards to Egg at 0% interest for five months, with a 2.5% fee of the amount you transfer.
Even though the rate reverts to 16.9% when the period is up, on the surface this sounds like a decent offer. Yet there is a massive catch.
| What's the catch? |
Egg knows most people using this offer will have existing debts on the card and/or will use it for spending. The interest rate for those is still a large 16.9%, as they're not part of the cheap 0% balance transfer offer.
Thus to make its money, Egg biases your monthly repayments towards paying the cheap balance transfer debt first; leaving the the more expensive debt trapped on the card quickly accruing interest, and you can't repay it until you've paid off all the cheap balance transfer debt. This means that though your balance transfer debt is cheap, Egg is effectively making more money off your existing debt to subsidise it.
Plus on top of this, and quite unusually, the 2.5% balance transfer fee is also treated as a purchase; in other words interest of 16.9% is charged on that fee too ,and you can't pay it off before the balance transfer debt either.
And it gets worse
There's an even more subtle dimension to this. As this is an annual offer, Egg hopes that having transferred the debt to it on the first anniversary some will still be left on the card the following year. So balance transfer again, and the same thing happens.
| The solution's in a loophole |
Shift existing debts to another card first.
Defeating Egg's scheme is possible. Before moving new ‘Anniversary' debt onto the card, balance transfer all the debt currently on it onto another card. Don't worry about the other card's interest rate though, as the moment the debt's there (wait until you have a statement showing the Egg balance is zero) simply balance transfer it back to Egg, along with the debt you were planning to move.
This means that rather than some debt at 16.9% and some at 0%, all of it is now at the 0% balance transfer rate. The only exception is the 2.5% fee, which will accrue interest at the horrible 16.9% - and unfortunately there's nothing you can do about that.
What if all your debt is on Egg?
Even if all your current debt is on Egg, providing you've got another card, just move it there and back and the interest rate should be reduced to 0%. There's nothing in Egg's terms and conditions to stop this happening.
Actually, you don't even need another card to get the money off Egg and back. However the other route is a bit more complex; Egg offers the facility to balance transfer directly into your bank account, rather than to another card. So you could simply pay off the Egg balance, with any other money you have, and then immediately do a balance transfer into your current account, so all the debt is now at 0%. However only try this if you're money savvy and understand it.
Remember the 0% only lasts 5 months
After five months all debts on Egg revert to its 16.9% rate. Providing you've followed this strategy, the average rate over the year would be around 8% which is very competitive. An even better option is move the debt onto a new card's cheap introductory balance transfer offer (see Best Balance Transfers article) when the rate jumps up. Then, when it's anniversary time again, simply move the money back to Egg's 0%.
This technique works with other cards too
As an aside, this applies to any card that gives existing customers balance transfers. Barclaycard has a standard 6.9% life of balance offer - but always move debts off the card and back so it's all cheap ‘balance transfer' debt (for more details on other existing customer balance transfer read The Credit Card Shuffle).
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| Who should take advantage of this? |
This technique is a boon for both card tarts and those struggling to get cheap credit.
- For tarts: For those who like to continually rotate debts to maintain a 0% balance this deal makes life a lot easier. The main problem with credit card tarting is the risk that it may damage your credit score, hurting your ability to get new 0% cards, which can happen if you have too many outstanding cards and debts.
Yet, as this method means Egg guarantees five months a year at 0%, fewer cards are needed to rotate balances, reducing the potential damage to your credit score and prolonging your tarting longevity. - For credit strugglers: Those struggling to get decent credit card rates will also find this very useful for much the same credit scoring reasons. If you've got an Egg card you're guaranteed five months of the year at 0%.
In fact for just this reason it's worth almost everyone keeping an Egg card in their credit card arsenal – as the potential for 0% debt when all others are rejecting you is fantastic (for an article on dealing with credit cards if you can't get new credit read ‘The Credit Card Shuffle'). Just don't use it for anything else, as its rates are poor.
Yet by moving the money off and back to Egg each time, the cost would be just £630 – a saving of over £700. And of course if after each Anniversary ended the debt was moved to a 0% introductory card – there'd be no interest at all.
Cost of combined £9,000 debt over 17 months repaying £200/month | ||
Method | Total Interest | Saving |
Normal Use: £5,000 debt at 16.9%, with a £2,000 0% balance transfer each anniversary. | £1365 | - |
Egg Loophole Technique: As above, but existing debt always moved off card and back. | £630 | £735 |
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