Earning interest on 0% CC cash advance checks

[CompoundInterestFan]

Of all the credit card offers I get in the mail, a few of them offer 0% interest on cash advance checks (though there is usually a fee to cash them). Recently someone told me about using these to put into a CD and earn interest off the money, as long as you pay it back before the 0% interest period expires. I've thought about doing this several times, but it's never seemed worth it. First off, the up-front fee is usually 3%, which means that I'm only making about 2-3% with most CDs. Second, there's the hit to my credit. Maybe if I could get a high enough limit, say above $30k, that might make it worth it. But otherwise, I can't really justify it.

So basically, I'm just curious if anyone else has tried this or does this regularly. Or if not, am I on the right track by avoiding this?

 

[Tommy]

You can make money on these and its probably worth it if your credit line is high enough.

Lets say there are 4 cc's with a credit lines of $20,000 each. The 3% fee has a cap of usually $50 - $90 total.

Borrow the max minus $100 on all cards, pay about $300 in up front fees and put the $79,600 in a Emigrant Direct account at 5.05% interest.

You should have at least 6 months at 0% on each card but a year is best.
If your average is 9 months on all 4 cards thats ($79,600 x 5.05% for 9 months minus $300 or $2714.

Set up all credit cards to take the minimum payment from your checking account and on the day the 0% ends for each card you need to remember to pay it in full.
And be sure to have enough in your checking to cover the minimum payment drafts.

Just pay them back with their own money.

The $2714 is taxable income.

 

[Peaceful_Warrior]

I'm about to do it... just signed up last night for a 0% BT card with 0 transfer fees. Just going to "transfer" to my debit card. Then take the cash, invest it, and 11 months later do one of two things:

1) Transfer to another high limit 0% BT card
2) Pay it off with the interest earned

Since I'm planning to move/buy a home about a year from now, I'll probably just pay it off. Then after the move, rinse and repeat.

 

[LOL!]

This is called stoozing. If you do it, you are a proud stoozer.

I did this a few years ago when there was no fee whatsover to do this. Nowadays, the offers I get in the mail charge a 3% fee with no limit. That is, they are no longer limited to a max fee of $75. The 2% arbitrage gain is hardly worth it to me, especially when I pay income tax on the 2% making the after-tax gain even less.

The web is replete with info on folks who do this with all the caveats as well. And the caveats change as the CC companies do things to trick you. I have heard that near the end of the 0% time, they change the due date on your bill, so some folks who are not paying attention miss the date and get whammed with a big interest bill.

As always read the fine print.

 

[clifp]

I do this on cards where the interest rate is near 0% (1% or less) and the total fee is less than $75. I am about to start on my 3rd go around with my United Visa at 24K a pop including fees of $150 the 14 months of free money will be worth about just under $1,000 after taxes. I well worth the few hours I devote to double check due dates etc.

 

[fluffy]

I've been doing it for couple years. If you have good credit score and are organized it's very doable to line up over $100K in 0% interest with capped fees ($75 cap is typical) by applying for a bunch of cards at once and re-allocating existing credit lines to the new offers (see http://www.fatwallet.com/t/52/632935/ for lots of useful info). Both Citi and Chase still have a lot of capped offers though BoA/MBNA seems to have gone with 3% flat everywhere which kills the deal.

If you can get $4-5K/yr from this it's like having saved extra $100-125K with 4% SWR, right?

 

[mickeyd]

Hey CIF (compound int...),

So basically, I'm just curious if anyone else has tried this or does this regularly. Or if not, am I on the right track by avoiding this?

Seems to me to be a lot of effort and possible big trouble for not much return. If you can be clever enough to beat their system, you are probably clever enough to put your brain in gear and figure out another way to make some real $ in the stock market over the long term.

 

[Tommy]

Hey CIF (compound int...),

Seems to me to be a lot of effort and possible big trouble for not much return. If you can be clever enough to beat their system, you are probably clever enough to put your brain in gear and figure out another way to make some real $ in the stock market over the long term.

If it is set up properly it does not require much effort. Possible trouble can arise if you do not pay off the balance in full prior to the 0% rate expiring.

I think the risk is less than the market but there really is not alot to be made.

Banks are going to make their money on those who do not pay off the debt. Just dont be one of them.

 

[Hamlet]

If you have a HELOC, you can use a regular balance transfer from a new credit card offer. I still get these offers without any transfer fee on occassion. I transferred my HELOC balance to a new 0% interest card.

 

[SecondCor521]

If you follow fluffy's link and then search for my userid you can read about my experience so far. I'm in the midst of floating about $92K on five different BTs at about 5.3% interest for a year. It works out to $4,800 a year gross income, which, to put it another way that makes it sound worthwhile, equates me to have a 2.95% before tax mortgage.

There is a lot of reading and learning to do before undertaking something like this, and you have to stay organized and/or automated as to not miss a single payment. The real payoff I think will be the second time around, when I can apply all the lessons I have learned this time around and will be able to do things about twice as efficiently as the first time.

2Cor521

 

[bosco]

to make any money at this is too much like work.

You have to keep track of all of them and be sure not a single payment is late, otherwise all the benefit goes poof.

I used to play this game, but don't any more. I have about $10,000 in 2.9% fixed, and it's been there for years (left over from raising cash for a mortgage down-payment years ago). One of these days I'll pay it off--figuring in taxes, I make about $7/month on it. Not worth the bother, really.

 

[Tommy]

You have to keep track of all of them and be sure not a single payment is late, otherwise all the benefit goes poof.

Not totally true, every card that you borrow money from request that the funds are put into your checking account. Then have all the funds transfered from checking to an onliine savings that earns 5% plus in interest.

Have every credit card company automatically deduct the minimum payment from your checking. Make it their responsibility.

Your checking account is funded for the minimum payment drafts with one automatic monthly transfer from your online savings to checking.

On the day the 0% expires you must pay off the total balance on each card. Thats really your only work.

 

[soupcxan]

I made $1500 from this last year, after taxes, for about 1 hour per month. I'm happy to trade 12 hours of my time for $1500.

 

[Peaceful_Warrior]

Anybody know any currently good non-Citi 0% BTs for this? Citi won't let me get any more credit (just transfer my limit over to the new card), so I'd like to leverage a 2nd 0% BT out there to cover my living expenses for the year.

 

[justin]

Anybody know any currently good non-Citi 0% BTs for this? Citi won't let me get any more credit (just transfer my limit over to the new card), so I'd like to leverage a 2nd 0% BT out there to cover my living expenses for the year.

Chase - 0% for "up to" 12 months, $75 BT fee max on many cards.

 

[Peaceful_Warrior]

Sweet! Thanks!

Chase - 0% for "up to" 12 months, $75 BT fee max on many cards.

 

[maddythebeagle]

the BOA biz cards and on the personal side boa efectiva give no fee 0% for 6 months...you can try to negotiate the no bt caps on the other cards if you want...I relocate limits to my bill pay card that can be used to pay other credit card balances rather than bt much with BOA...

 

[CompoundInterestFan]

Thanks for all the input everyone. I'm still not convinced, but I've got some researching to do. But one question which remains unaddressed is, what about the hit to your credit?

 

[SecondCor521]

Thanks for all the input everyone. I'm still not convinced, but I've got some researching to do. But one question which remains unaddressed is, what about the hit to your credit?

The short answer is that your credit score does take a hit -- first a smaller hit from the inquiry/inquiries associated with the applications for the new accounts, then a larger hit associated with having accounts with high utilization. Depending on your current credit history and how aggressive you might be, the drop may be any where between 30 and 100 points.

However, after you pay the balances off, the larger hit goes away; six months after you apply the inquiries are generally not a negative.

The general rule is to not engage in this type of activity if you need your credit score to be high. You may need it to be high if you're going to apply for a mortgage or a job.

2Cor521

 

[clifp]

I would assume that after you pay it back, your credit score would even raise a bit, because you showed you could borrow a lot of money and then pay it back on time.

Personally, since I have no further need of credit, I don't care what my score is.

 

[bosco]

Personally, since I have no further need of credit, I don't care what my score is.

from what I've heard, your car insurance, homeowner insurance, and a lot of other things depend on your credit score. Maybe you don't care what you pay for those?

 

[SecondCor521]

from what I've heard, your car insurance, homeowner insurance, and a lot of other things depend on your credit score. Maybe you don't care what you pay for those?

They usually only check your credit score when you first purchase the insurance. In theory they could do soft pulls occasionally to check your credit score periodically while you are a current customer, but I have not had that experience.

I pay $43.20 per month for 300/500 coverage on my car insurance and $268.04 annually for my homeowner's through USAA.

2Cor521

 

[maddythebeagle]

errr. that and most people that do this and know what they are doing....dont max out their cards...max them out makes you look like a risk and some card companies will cut your limits or close accounts....no need to completly trash your credit if you have a long view of getting better offers and more credit...

 

[justin]

I guess I'm a "credit risk" Citicards sent me 3 invites to join their "payment partner program". Get this - I pay off my 0% credit cards on time (the 0% offer is up anyway), and they give me $550 per card for merely paying my bills on time. $1650 (more) free money.

 

[clifp]

from what I've heard, your car insurance, homeowner insurance, and a lot of other things depend on your credit score. Maybe you don't care what you pay for those?

As much as possible I self-insure, obviously liability for auto insurance and home owner insurance are not practical to self-insure.

My point being that I have very good credit which I maintain by paying my bills on time, I don't worry about the minor credit hits that occur from soft inquiries, credit utilization etc. As long as CC companies are willing to loan me 5 figures amount at 0 to 1% I am happy to take their money and invest at a higher rate.