Long time readers will probably remember my credit card arbitrage strategy. I’d regularly take about $200,000 in credit card balance transfers and put it into high yield savings accounts earning interest and cash in on the difference.
And while the credit card act and credit crisis changed the landscape of credit cards, it didn’t kill the arbitrage game completely. Here’s an update on credit card arbitrage today.
Current Credit Card Arbitrage
I’m still going strong on credit card arbitrage! There is still a lot of opportunity in credit card arbitrage, but it does take a little more creativity.
I’m currently carrying about $189,000 in credit card balance transfer money.
Changes in Credit Card Arbitrage
I have made some modifications to my strategies. With the shift, here are some of the ways I focus on arbitrage now:
Offers from current cards. One of my best source of new balance transfers is from current cards. I still get offers in the mail. Last week I took advantage of a 12 month 0% balance transfer from Bank of America.
It’s on a card that I already have (my Fidelity 2% Cash Back Credit Card) and it’s one of the benefits to having dozens of credit cards and keeping them open.
They also let me reallocate my credit line from another card. So even an offer in the mail on a card with a $3,000 credit limit was turned into a $18,000 balance transfer with a quick phone call.
Seek out higher interest. Finding a place to stash the cash has also become more difficult since rates are lower, but not impossible. I recently reserved a good chunk of 5% CDs at Penfed to stash a lot of our balance transfer money.
Pay a Little Interest. While 0% is always ideal, there’s still a lot of opportunity to use cards with an interest rate less than 3%. I have many uses for these low rates, like offsetting our mortgage or heloc.
Lock in life of balance transfers. I jumped on the opportunity to lock in various life of balance transfers to finance long term investments like our rentals. Every time I get a life of balance transfer in the mail, I calculate the long term cost of these. Since you can float the money for such a long time, sometimes over 29 years, they are often a fantastic deal, even when you have to pay a small fee or a little interest up front.
Recalculate the Fee. While the 0%, 0 fee offers are great, they are harder to find these days. But don’t overlook a fee that is stretched out over a long time period, like the 21 month balance transfer from Citi below.
Favorite Balance Transfer Card Right Now
Besides the offers in the mail, I keep a running list of the current 0% balance transfers available right now.
So while the credit card arbitrage strategy has evolved, I’m still in the game.
I just found this website this weekend and I have been reading many of the back posts this week. There are a lot of great ideas and strategies I had not previously considered.
However, as you link to 0% balance transfers, is there any advice about the longer-term (or lifetime) balance transfers? I don’t believe I’ve come across these (on this site or in my mail), and I was wondering if there are any tips for how to spot them.
Welcome! I’m glad you found us!
Almost all of the life of balance transfers I’ve gotten were from offers in the mail on existing cards. You know the junk mail you normally throw away?
One of the cards that we have that seems to send them a lot is the US Bank Baylor credit card.
How do you get 1.7% when you spreadout the 3% balance transfer fee over 21 months?
Also, how do you determine the monthly min payment once transfer is complete? Is it a % of the balance?
Here’s an example to see the 1.7%:
A fee on $10,000 would be $300. If you divide the fee by 21 months, you’re paying roughly $14 per month. Divide the $14 by $10,000 and you get .14% for the month. Multiply that by 12 to determine the annual rate and you get about 1.7%.
The minimum payments vary by issuer. Usually they have a 1% or 2% minimum payment.
I remember when the strategy was all the rage in the PF blogging world but I am hard pressed to understand how this could still work.
I’d love to see a simple example. You get a $1K credit card (just a simple example) you pay 3% and put it in a CD paying what? And then after taxes you are talking about a lot a headaches for a hundred bucks?
You are right, it would be a lot of work for $100 bucks. Where I make a significant chunk of money is in the sheer volume that I do.
I can easily make $4,000 on a 2% spread on $200,000 in balance transfers, which is definitely worth a little effort!
Here’s a helpful example for you:
We used a 2.99% balance transfer for $30,000 of one of our rentals. The rate for our commercial loans is about 6%. So each year we save about $900 on that rental.
Hmmmm… I’m not sure that it is an apples-to-apples comparison to compare debt on the credit card to debt in the commercial loan – even ignoring the secured vs. unsecured distinction. More specifically, the commercial loan that you are talking about is most likely a 30-year fixed – the highest rate, but least risky product. You are comparing it to a product with a rate guarantee of only up to 12-21 months (at least at 0%) – that has the downside of being immediately callable at expiration or forcing you to pay very high interest. Why would it not be more accurate to compare your credit card return with something with more risk, like a 1-month LIBOR, for example? The 1-month LIBOR is currently at 0.25% and you can get commercial loans (depending on area and credit) with a margin as low as 175 basis points – as I know from personal experience.
Also, what about cash flow? It seems like you would have to pay about 1% or about $2000/month to make the payments for the 200K of credit card debt. However, the commercial loan payments would be much, much less – you are looking at about $1200/month with a 30 year fixed or about $350/month with a 1-year ARM.
This is not to say that you can’t make money with the credit card arbitrage – you absolutely CAN. However, your comparison to the real estate loan does not seem like a good fit.
Also, to get to Evan’s point, let’s assume that you earn $4,000/year in taxable interest. I don’t know your specific situation, but you probably lose about 35% of it to federal and state taxes. That leaves $2600.
I don’t know how much time you spend 1) servicing maybe 10 cards/month including filing and bill paying, 2) monitoring the expirations of your accounts, and 3) tracking down and opening new account, etc., but it would probably take me about 10 hours/month – which is 120 hours/year. Consequently, I divide $2600/120 to get an hourly rate of $21.66/hour. Even if it only took me 5 hours/month that would be an hourly rate of about $43/hour.
And that’s pretty much a best case. If anything goes wrong, then the return quickly plummets and can become negative pretty quickly.
So here’s the kicker and my opinion – anyone smart and disciplined enough to do credit card arbitrage on the scale that you are suggesting can most likely do something else that will make them more money per hour than the arbitrage can bring in. Madison, you are a financial genius – your time is being wasted at $22/hour (or even $43/hour). There are so many things that a person with your skills could be doing to bring in so much more per hour – even while watching the kids. Just to toss out a few – financial planner, investment manager, financial operations consultant (either independently or associated with an accounting firm), part-time CFO (just get your CPA if you don’t have it already – I know a lot of CPAs and you are as smart as any), etc.
Also, have you looked into the dollar carry trade? It seems like somthing that you might be interested in based on your cc strategy.
Thank you so much for posting your evolved credit card arbitrage. I am still on the sidelines, but your information is very useful.
Couple of questions regarding cards and arbitrage:
1) When you do balance transfers, do you use the transfer checks or just have them CC issuer send you the amount and you bank it wherever?
2) I have a relatively high credit score, and was looking into a balance transfer card. What I got was a low limit (about half of my current line of credit) and an interest rate you’d normally offer to first time cardholders. How do I combat this, just call them and demand it?