March 18th, 2008
Make Money With Your Good Credit
Lately I’ve heard a lot of people touting the idea of using 0% APR credit cards as a way to feed alternate high-yield savings plans. The concept itself is simple; you basically borrow money at no interest and put it into an account (or several accounts) that will earn you a decent interest rate- something, say, in the neighborhood of 3% – 6%.
The easiest way to do this is to your use your good or excellent credit to secure 0% APR credit cards that allow balance transfers or convenience checks. Lenders use this kind of offer all the time to increase balances on cards that they expect you to keep after the 0% grace period is up. Some of them will even offer bonuses for your first transfer to entice you that much more.
On the surface this seems like one of those loophole situations where you wonder “why didn’t I think of that?” because as long as you pay off the cards before the interest rate goes up you’ve effectively used one bank’s money to earn yourself interest at another bank. And the more 0% credit you can use, the more you can earn.
Many people claim to have made several thousand dollars a year with this method but, of course, no loophole is ever airtight. There are some inherent dangers:
- Having multiple credit card inquiries will temporarily lower your credit score. This may be a problem if you are attempting to secure a loan, especially a home or auto loan.
- Having high balances and using a high percentage of your overall revolving credit line will also lower your credit score.
- If you miss just one payment on one of the credit cards you could be immediately repriced into a high APR. Upwards of 30%. This could severely jeopardize your overall return on investment if you cannot find another place to put that debt. See this article for an idea of what I’m talking about: “A Credit Card you Want to Toss“
To me, it’s just not worth the time, hassle, or detriment to my credit score for the extra dollars I’d be lucky to make. I’d have to apply for several cards, keep track of when the introductory 0% APR is over for each one of them, remember to make payments on all of them every month, and so on.
But hey, every person is different, and if you want to try it out more power to you. There are certainly plenty of offers out there for people with good credit. Both 0% APR credit cards and high-yield savings offers are available on Credit Karma. If you try it out, let me know how it goes.
Pretty clever idea, but I doubt you can make much money in this market doing that: The savings rates are ridiculously low. There isn’t any 5-6% anymore, even for those online savings.
Agreed the arbitrage opportunity is getting smaller with the fed lowering rates. The 6.01% link seems to still work although there was a comment that the bank hasn’t been responsive.
I’ve been using good credit card offers for years to margin my stock/mutual fund account, of course this is a little bit more risky, but its cheaper than using the margin feature from my brokerage.
Another problem (other than lower CD & money market yields) is that the credit card companies are putting on a 3% transaction fee with no minimums. Even a $99 maximum fee is way too much. The risk of missing a payment deadline is also a major negative factor even though it’s not your fault.
Pulled $8400 last year. All T-Bills, Zero State Tax and discounted rate made it a no brainer. Offers dried up last fall and they are all charging 3% ($5 Min no Max) fees as well as Treasury Rates have plummeted.
The Party has been over for a while.
While this might be a neat, tricky little tactic to earn a little money, I feel that the risks involved make it a little too risky for me. It was probably much easier to work before, but I’m thinking that now isn’t the right time for it.