What is Credit Card Arbitrage?

Posted by Madison on June 19, 2008

That’s what a reader, Maha, wanted to know. Maha sent me a note to let me know that trying to find out exactly what credit card arbitrage is all about, is like reading the middle part of the book without being able to find the beginning.

So I’ve realized that I talk just like I write! Sometimes I just start talking (or writing) about a subject without any introduction. In real life, people stop me and say, “What are you talking about?” So anytime I write an article, if it’s not clear, feel free to ask me more about it! Either leave a comment or send me an email. I love to share things I learn, but if they don’t make sense, then it’s not helpful.

Let’s get back to the credit card arbitrage.

What is Arbitrage?

From wiktionary, one of the definitions is:

Any market activity where a commodity is bought and sold quickly for a profit which far exceeds the transaction cost.

A Simple Example

Let’s say you are walking down the street and you see a sign that says, “Lemonade For Sale, $1.00.” As you walk to the next block, you see another sign, “Lemonade Wanted – Will Pay $2.00.” Of course, you think to yourself, I could make $1.00 if I buy the lemonade from the first stand and sell it to the second.

You walk to the first stand and buy all his lemonade – 50 cups for $50. You walk down the street and sell all 50 cups to the second stand for $100. You pocket $50 and go on your way.

This is an arbitrage situation. There’s a price differential between two markets that yields a profit. It’s easy to see in the lemonade example. There are real life situations where arbitrage situations exist, but sometimes they aren’t as clear as the two lemonade stands.

An Arbitrage Example

Here’s another example. A friend offers you $10,000 to use for one year any way you like. For the use of the money, the friend charges you $99. You realize that you can deposit the money in your ING account and earn 3%. You quickly realize that you could make over $300 in interest and after paying your friend $99, you will have made over $200 profit.

Credit Card Arbitrage

The above situation is exactly what is happening in credit card arbitrage. Instead of a friend, you are dealing with a company. Here’s how it works:

  1. Take a 0% balance transfer from the credit card company.
  2. Deposit the money in your savings account to earn interest.
  3. As payments are due, pay the bill with the money in your savings account.
  4. When the 0% offer expires, pay off the remaining bill with your savings account.

As long as the interest (less taxes) is greater than the transaction costs, you’ll have made a profit and taken advantage of an arbitrage situation.


Don’t get me wrong… the situation I described sounds too easy, it’s exactly the reason that the arbitrage exists. I’m guessing the majority of the people that try it slip up. They miss a payment, spend the money, forget to pay by the expiration date, etc. And the credit card companies make money, big money, on those mistakes.

Do I recommend it? No. Because it’s so risky and easy to mess up, I wouldn’t want to ever receive an email from a reader that made a mistake and lost a bunch of money!

Why do I talk about it if I don’t recommend it? I do have readers that take advantage of credit card arbitrage. It’s also fun to learn about new things even if you aren’t going to try it.

Arbitrage Extras and Twists

Scale. The larger the amount of money, the more that you can make. We made about $12,000 last year because we were running over $200,000 in arbitrage money. We also have about $1 million in credit limits to pull of such a big arbitrage plan.

How to get the money into your checking account? Some companies offer to send you a check. Others want to pay off a loan. I can easily use my heloc for this.

Use to pay off higher interest loans. We frequently run part of our mortgage at 0% interest rates to save even more money. If we were to ever run out of offers, we would put the money back on our heloc.

What happens at the end of the offer? When the 0% expires, I apply for a flurry of new cards and reallocate our credit limits for bigger balance transfers. It keeps the arbitrage going for another year.

Taking advantage of a spouse. I apply for all the credit cards in my name only. That enables me to run another set of arbitrage under my husband’s name!

Action Plan

We’re currently nearing the expiration on my cards. In the next few weeks, I’ll be “turning over” all my cards into new offers. I’ll write about some of the strategies that I use in more detail as they occur.

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Comments to What is Credit Card Arbitrage?

  1. Thanks for the link. I’ll be watching for any updates about whether this is continuing to work for you.

    Michael James

  2. Madison – thank you for posting this fantastic article. Now I thoroughly understand credit card arbitrage. I’m not brave enough to try it, but I’ll look for smaller opportunities. There’s a couple lemonade stands out this time of year…


  3. Just curious if you ever noticed a dip in your credit score in the midst, or at the beginning, of a round of arbitrage?
    I had a pretty good run, but eventually had offers dry up by not waiting and applying for everything on the same day (I think), so my credit score took a bit of a ding. We’re just going to wait it out for 6 months or so at this point, and start over Wish we had a credit limit like yours!
    Thanks for the informative post.


  4. Interesting. I’ve heard about credit card arbitrage, but never looked into it. A very interesting and informative read. Thanks. 😉

    Marc and Angel Hack Life

  5. I do cc arbitrage myself, although not on the same scale as the author! Last year thru sign up cash / bonus reward points offers I wound up making $680 plus the interest I garnered by maxing the cards and keeping the cash in my savings account. Bank account / cc sign up bonuses are also an excellent source of income, tho your credit score will certainly take regular dings. But $125 to sign up at Chase for chequing? Count me in!

    I’d recommend arbitrage only to anal retentive type people who check their balances every day and keep track of things in spreadsheets. If you are not that kind of person, than arbitrage is probably not for you.

    Tyler Style

  6. I’ve always thought credit card arbitrage was a cool way to make a little money but never got around to it. People mention risk, but IMHO the risk is much lower than with investing in a stock market. Stocks can go down as recent experience shows, but here the mistakes are your own.

    Nowadays though, it seems that the gain isn’t that huge given how low interest rates are. Maybe on a million dollars, but I am a bit reluctant to open so many cards. I do admire you for doing it – as I said, pretty cool.


  7. I’m new to the arbitrage game, and I doing a series of posts on my first experience. There have been a few bumps along the way. One day I might be in MyDollarPlan’s league, but right now the amount of debt you carry scares me!



  8. @ Maha: Glad it helped… some kids in our neighborhood had a lemonade stand this weekend – it made me smile!

    @ Jay: I usually notice a slight dip in our credit score immediately after applying for a round of new cards. However, I never go over 90% utilization on any one card, and keep overall utilization to about 20%. By time I’m ready to get new cards after a year, it’s always bounced back and gone up a little.

    @ kitty: Yeah, back in the day of 6% interest, the profits were much better. You’re right on the risk – if executed properly, there is actually very little risk.


  9. I used to do this and gross $250/mo. My accounts were opened throughout the year and I paid off accounts as the 0% expired.

    Stopped doing this because part of my technique involved buying savings bonds on-line with a rewards credit card fo a 2% kicker into a 529 account. After US Treasury suspended on line credit card purchases of bonds, it seemed too much trouble to continue for the returns. At the time MM accounts were returning 1-2% annually.

    I may get back into it again but want to make sure I don’t have a move in my future.


  10. @ E.L.: Oh yes, I have fond memories of the days when we could buy online savings bonds. Is was so much easier then!

    And I know precisely the card you talk about… the Fidelity 529 card, it’s my favorite! I just wish that they still offered it so other people could sign up for it.


  11. I’m interested in trying this but the best savings account rates I can find are only yielding about 3.5% when the balance transfer fee on the card I’m thinking about utilizing is 3% with no cap! Is it just not a hot time for this arbitrage?

    Also, how would I get the money if I do not have a HELOC and current cards with balances already? Example: 30K business card offers 14 months 0% APR on Balance Transfers but my only debt is a small credit card with a 1K balance. Wouldn’t the business card only pay the 1K? I’ve read here that I would request 30K to be applied to my 1K to get 29K negative balance but that just seems fishy to me (and probably both card issuers.)

    Also if this were to be my first time then I wouldn’t necessarily earn the full 3.5% (per my example) since I would be using a portion of that account to make the minimum payments on the BT.


  12. It seems that all of the balance transfer fees are uncapped now. Are there any good offers left?


  13. I did see maximum fees on the business cards, but they have this in the terms:

    “Balance transfers must be from business accounts.”

    What exactly might this mean?


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