Credit Card Arbitrage – As Simple as it Seems?
Often times credit card companies will offer one or more credit cards that have 0% APR balance transfer. Credit cards offering 0% APR balance transfers allow the cardholder to transfer the balance, or your credit 
limit on the card, to your bank account. Sometimes the credit card company will also give you the option of receiving the money in the mail via check if you prefer that method.
There are a few things that you will want to look out for when searching for a credit card like this. First of all, make sure that the card does not charge a balance transfer fee. Secondly, what is the length of time for which the 0% interest is offered? You will see different credit card companies offering various lengths of time, and ideally you would like for it to be for a year or so. Thirdly, does the card offer 0% on balance transfers or on purchases? Many cards will offer both, but in this situation, we are going to focus on those credit cards that offer the 0% APR on balance transfers.
Now, what is the idea behind all of this? It’s simple. Basically, you are borrowing money from the credit card company at 0% interest and placing it in an account where it will earn interest for you. Obviously you will want to place it where you can get the highest return with the lowest amount of risk. For example, placing this money in the stock market may not be wise because there is risk involved. Placing it in a money market account or a high-yield checking account at your bank would not involve risk. Of course, at your bank all deposits are insured up to $100,000 by the FDIC.
So how much can you make? Well let’s just say you applied for a credit card that offered 0% APR balance transfers for one year. You were approved and your credit limit is $5,000. You place the $5,000 in a money market account earning 5% for one year. Now do the math, 5% of $5,000 is $250.
Do not get too excited yet. Remember, you still have to make at least the minimum payments on time on this credit card. In most cases the minimum payment would be a small percentage of the total balance. A person may have the idea that 0% means no payments. That is not true. When all is said and done, the monthly minimum payments will lower your returns. Also, you have to pay the total balance of the credit card off before the 0% offer expires! Make sure that you are aware of the date it expires. If your credit limit on the card was $5000, you must pay the $5,000 before the expiration date that is stated on the terms of your credit card.
The arbitrage tactic is becoming more popular for some consumers and can be viewed as an easy way to make some extra money. However, many believe that it is dangerous and possibly hazardous to ones financial state. Some cannot resist the temptation of investing the transfer amount in the stock market. While this could result in higher returns, it is extremely risky. Missing monthly payments, forgetting to pay the balance before the offers’ expiration, and the simple fact that you are maxing out your credit card can all lead to a decrease in your credit score and a high interest rate. Also, many “anti-arbitragers” believe that the return is not worth it considering the time and effort that is put into the process. In the end it is all up to you, proceed with caution.
2-6-2012
by Dan Seitz
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2-3-2012
by Chris Martin
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12-5-2011
by Neil Hayashi
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Your credit rating has a direct impact on the interest rate you'll pay on your credit cards. See below for today's APR averages:
| Credit Rating | APR Avg |
| Excellent Credit | 12.51% |
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Dan Seitz
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Dan Seitz
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Dan Seitz
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