How To Make Money From 0% APR Balance Transfers
(This entry is continued from Part 1.)
3) Getting your money: Some banks such as MBNA, CitiBank, and Chase will allow you to either transfer your balance directly to a checking account or send you a check in the mail. The former is preferred since you’ll be losing potential interest while the check is in the mail and waits to clear.
Update: Citibank cards are by far the easiest to use to turn a balance transfer into cash, because you can request your balance transfer to be sent to you as a check (click for how)!
Another alternative is to transfer a balance from another credit card. This other credit card does not need to actually have a balance for you to do this! What happens is that you will have a negative balance. You can then call up the credit card company and ask for a refund of your “overpayment”. MBNA does not do this anymore, American Express does, and others do too. The best option again is Citibank, which even lets you request a check for your negative balance online.
Added: Note that I am not getting a cash advance, I am talking about balance transfers. Many credit cards offer balance transfers with no fees and 0% APR.
4) Making money with other people’s money: Now that this money is yours, I recommend placing it in an FDIC or otherwise U.S. Government-insured account that earns the best interest possible. Options include a checking or savings account, money market account, savings bonds, or treasuries. You could also invest it in the stock market, say some shares of QQQQ, but this basically amounts to gambling with borrowed money (which is fine for some people, and what margin accounts are for). For a good list of options, please check out my comparison of high-yielding online savings accounts with no minimum balance requirements
4) Counting your money:Let’s do some quick calculations to see how much money we are actually talking about. Let’s say you get a $15,000 credit limit on a 0% APR Balance Transfer for 12 months. If you put this in a 4% APY account, that gets you $600 of taxable interest. This amounts to $450 net for the 25% marginal tax bracket. Not bad for what will probably take you a couple hours to do! Now, you will have to continue making minimum payments on this account, which is about 2% of the balance and will eat into your profits a bit. This is another reason why a savings account is useful – you can just take out what you need for minimum payments as you go.
Update: Here are more Tips and Tools for doing Balance Transfers.
5) Things to watch out for: To be continued in Part 3.
By Jonathan Ping | Credit Cards | 1/31/05, 10:34pm