[wannabe]

I've been browsing on the credit matters blog someone listed here, and I just saw something entioned that has to have a catch.

They said that if you get a 0% for one year credit card you could then put the money in a CD (for less than a year), making the interest pure profit. What's the catch?

[I've never heard of a card that didn't charge interest and/or a fee on cash advances, I assume they exist]

 

[Denvergirlie]

Yes people do this and yes there are credit card companies that will let you take cash advances with no additional fees.

It's going to take some research and more research.

 

[EviesMom]

I imagine the catch is that it's a lot of work, probably trashes your credit rating if you do it over and over, because those offers are usually introductory offers when you open the card, so you'll be opening more and more accounts if you want to do it more than once.

Oh yeah, and if you forget to pay it before the 0% comes off, I believe the interest will jump pretty high pretty fast and eat up your profits.

 

[TiredX2]

There is often a fee for cash advances. Sometimes it is very little, but other times it can wipe out the proffit in a CD.

 

[gurumama]

It's called "credit arbitrage" and there are a ton of people on FatWallet who do it.

You get a 0% interest for 12 months offer. Balance transfer fee of, say, $99 maximum. You take one of those convenience checks that comes with the cards and write yourself a check for 80% of your credit line (let's imagine your credit line is $10K--you write one for $8K).

You're charged $99, so already you're out $99.

The $8K is in a 4% CD. At the end of the year, you earned $320. $320-$99 and your return on investment is $221.

For payments, you set up automatic payments via online banking, to pay your minimums a few days before they're due.

People on FatWallet will do these with $80K, $100K, or more, and make an extra $3K-$6K per year.

There are a LOT of things that can go wrong, which you can read about on other boards

Edited to add: You have to pay taxes on that $320 you earned, so your net gain is actually lower than $221.

 

[wannabe]

Thanks for the great reply gurumamma. It's a lot of stress for not much money, but so clever! I would be terrified of missing the dates for withdrawal and payment.

Of course my $500 limit card wouldn't work for it

 

[gurumama]

The worst is when someone missed one payment. Maybe the cc changes the due date by a few days--lots of reasons why one payment is missed.

Suddenly the 0% interest rate is gone, replaced with a 14.9% rate. Then, because of "universal default," other cc are allowed to remove the 0% rate--and people floating $80,000 in credit arbitrage see their system fall like a house of cards.

I've read about it repeatedly. That's why I don't do it