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July 27, 2007
Making money on balance transfers
I've written about this trick before and you probably already know about it, but the Wall Street Journal finally wrote about it last month. Here are some interesting quotes regarding low, introductory interest rate balance transfer offers.
In short, you make money by borrowing the money at 0% interest with a balance transfer check, park the money in a high yield money market account until the introductory period expires, then pay back the credit card company, pocketing the interest.
The WSJ found Ira Stoller of Butler, N.J. who says he makes about $1,300 to $1,400 a year this way. "It's not a get-rich-quick scheme, but it sure does pay for vacations," says the 71-year-old salesman. Assuming he's earning 5% interest on those balance transfer funds, Ira apparently manages to borrow about $26,000 - $28,000 at a time from credit card companies. But I've got Ira beat - right now, I've got about $42,000 working for me - $22,000 courtesy of Citibank and $20,000 generously on loan from Chase, all at 0%.
Credit card companies have caught on, of course, and now it's harder to find a balance transfer that doesn't impose a fee, usually 3%, on the transfer. The key is that they often cap the fee or sometimes you can get them to waive the fee. For example, Citibank waived the fee and Chase capped it at $75 for my two offers. Since I'll make a few hundred bucks in interest, even after taxes, it still makes sense to pay the $75 fee.
The WSJ says only a small number of their cardholders play this game but that credit card companies are making it tougher. For example, interest-free balance transfers time periods are being reduced from twelve to six months and tacking on fees. Previously, such fees were often waived or capped at $50 to $75. But recently, Bank of America and Chase eliminated their transfer-fee caps on many offers, while Citibank raised its maximum fee to $250. Dammit!
"We've been aware of the phenomenon," says a spokesman for Citibank, a unit of Citigroup Inc. A spokeswoman for Bank of America Corp. says the interest-rate trick was "not at all part of the decision to go to uncapped balance transfers," which is obviously a lie.
The good news is that competition among card issuers for new customers is so intense that companies can't afford to do away with the generous offers altogether. American Express Co., Citibank, J.P. Morgan Chase & Co. and Bank of America, for example, say they still offer no-fee, 0% balance transfers to selected customers.
The Chase offer below is 0% APR for 12 months with a $75 balance transfer fee. So if you invest the money at 5% and clear 3% return after taxes, you'll need to transfer about $6,000 to clear about $100.
Posted by brian at July 27, 2007 02:54 AM
Comments
Nice. Too bad they're catching on to us. I just hope that gravy train is not completely dried up.
Posted by: turtle at July 31, 2007 05:30 PM
Fatwallet.com has deals like this if you've missed any. What happened to the forum? Like the table. Cheers.
- Jeff
Posted by: Jeff at August 1, 2007 06:44 AM