Banking Credit Debt Finances & Money

Citibank WANTS me to use their money to make more money!

Quick definition for you

Credit Card Arbitrage: The act of taking low interest rate balance transfers from your credit card company in cash and investing it into money-making ventures like CDs, money market accounts and (gasp!) even the stock market.

I want to warn you right off the bat, though, that you should only put the money into accounts that are guaranteed to earn more interest income than what you’re paying for the balance transfer. That means don’t invest it in the stock market! You could end up in the red and owe more money than you withdrew in the first place.

Inspecting a problem, getting a wad of cash

Earlier this month (July), I noticed a $0.00 charge on my Citibank credit card statement just identified as “Membership Fee July 08 – June 09“. Even though it was $0, I wanted to make sure it wasn’t some sleaze phishing for active credit card accounts, so I called Citibank. I found out quickly that it was from Citibank directly, and they do this “for every card, even if there is no annual fee”. Seems a waste of their resources to bill people for nothing and then field calls asking what it’s for, but Ok.

But while on the phone, the account representative informed me that “I had a special offer of a 0% balance transfer offer with a 3% fee or a max of $75“. First, most credit cards have removed the caps on their transfers because they knew people with good credit were just withdrawing the money and sticking in the bank. They were losing money on the deal!

But the next statement really caught me off guard. It went something like this:

You can use the money to pay off another balance, to take a vacation, to pay tuition or even just stick it in a high-interest bank account

WOW! They’re now promoting credit card arbitrage! Or at least this rep was.

So I took the money. It’s 0% until March 1, 2009, so about a 7 month deal once you take out the time to get/cash the check, deposit it, then pay the money back at the end of the term.

But before I took the money, I asked for a credit line increase. It was previously at about $12,000, but I got him to bump it up to $13,400 without dinging my credit score. And instead of taking out ALL of the balance, I left a $900 buffer and only took $12,500. It’ll still ding my credit, but I don’t have plans anytime soon to refinance the house or get another loan.

What will we do with the money

I will admit up front that I agreed to taking the money without any real plans for it. That’s counter to the last time I took out a major chunk of cash. The last time was early 2007 when I took out $15,000 to pay the Chevy Malibu off early. I planned that whole activity in advance and created an aggressive repayment schedule (which worked excellently).

This time, though, I have the following options:

  1. Throw it all towards the truck loan to avoid paying interest: This idea has merits, but unfortunately, we wouldn’t pay off the entire loan with the $12,500 (unlike with the Malibu), and we would be committed to paying off that whole amount in 7 months when we have a big vacation, Christmas and tuition coming up.
  2. Buy a bunch of useless crap: Yeah, I had to throw this one in there. I’m still really tempted to go get a big TV, or new furniture or numerous other things that we don’t need, but I’m resisting!
  3. Stick it in our ING Orange Savings account: Even though ING Direct doesn’t have the highest rates (currently 3.0% APY) compared to eTrade Max Savings (3.3%) or HSBC Direct (3.5%), we already have the account so it’s convenient. I tried chasing rates before and I didn’t care for it. We could earn about $220 in interest this way.
  4. Stick it in a 6-month CD: Using, I see the highest 6-month CDs are sitting around 3.60%. It’s more money than the 3% from ING Direct. I could just open an HSBC Direct account, get close to the same rate and have a more liquid account.

So ultimately, I think we’ll just stick the money into our savings account and have it earn us money. We’ll earn more than the $75 we paid for the transfer while still having the money if we have to pay it off earlier (no idea why we would need to though). It’s a nice idea to pay down the truck more quickly, but it’s just exchanging debt for debt (and credit card is the worst debt anyway!).

About the author

Clever Dude


  • @Eden, actually no, it’s not much trouble at all. They sent me the check, I deposited it at the ATM, it cleared in a couple days, and now I just log into ING Direct and do a quick transfer. It’ll clear in a couple days too. And it’ll take less time to pay it back because I can just pay from my ING Checking account (faster to transfer money within ING)

  • What are the minimum payments when doing something like this? I’m used to paying the balance in full so I don’t pay attention to them normally. I’ve heard it is anywhere between 2-5% of the balance on the card is that correct? What have people experienced?

  • To me that is just more risk than I care to take. I see credit card companies like sharks…just waiting to take a bite! Honestly I think I’ve probably got enough old CD’s or other junk laying around here that I could sell on Craigslist and come up with $150-200 quicker than trying to invest a credit card companies money.

    My opinion aside. I have in the past used a balance transfer to pay off a vehicle loan. That allowed me to get the title and have it in hand if I wanted to sell it before the end of the term. If you are still playing with the idea of selling the truck that may be handy to have the title in hand. Just a thought.

  • If you just have the maximum minimum payment automatically paid from your account for 12 months. And set up the final payment when you first take it out. Then there really is no work involved.

    And if the money is in a savings account, there isn’t a risk involved because you have the money. You have risk when you use it to pay off a vehicle loan. And that is when the risk might outweigh the benefits.

  • How do you have risk when you use it to pay off a vehicle? You still have to make the monthly payments. As cleverdude said, “it’s just exchanging debt for debt”.

  • The risk is that you screw up, a payment doesn’t go through, or they find some other excuse to jack up the interest rate prematurely. If you have the money in a savings account, you can pay off the balance immediately, so you’re only stuck with one month’s worth of interest charges (although even that could eat most or all of the profit you were hoping to earn). But if you’ve used it to pay other debt, then you’re stuck. It’s easy to exchange vehicle debt for credit card debt, but not so easy to exchange it back, I don’t think. If what used to be your vehicle loan has morphed into credit card debt at a 20+% interest rate, that kind of sucks.

  • johanna,

    I agree with what you are saying. My point is that there is risk either way. Even if it is in your savings account, and even if it is all to be automated, if there is any glitch you will see the interest rate jump up making the whole venture completely pointless. The margins on this type of “investing” are too small. Any glitch (not making payment on time, late fees, interest rate increases, etc.) kill the whole point of the experiment. Too much risk for too little reward in my opinion.

  • There is more risk in using the money to pay off a loan early, such as an auto loan. If you deposit the full amount into a savings account you have the money on hand to pay off in the end. If you add the amount to a loan instead, you need time to save the amount due month by month. If something terrible should go wrong and use more than you have in your emergency fund (or worse off you have none) then you would not have the money available to pay off the balance in the end. And interest bites ya.

  • It sounds like we are really all saying pretty much the same thing. If the interest rate jumps and you have the cash on hand to pay it off, you pay maybe one month worth of interest. That kills the profit you were hoping to earn, but at least you still just about break even – you don’t lose anything except whatever time you put into the whole exercise. But if you do not have the cash on hand, you might end up paying many, many months worth of interest, and end up deep in the red.

  • @CleverDude Okay, you sold me on the time involved. However, the risk of getting hit with fees or other ‘surprises’ would keep me from trying this. Obviously you have done this before and know what to expect. Just don’t forget to make that payment on time. 🙂

  • Have you run the numbers (I assume you have) based on you having to pay back monthly; I know you said its out of discretionary, but the numbers of the cost of the money versus interest (AFTER taxes) versus just putting the discretionary funds into ING instead of paying down this “loan”?
    Makes my brain hurt, but I bet there are calculators out there making it easy….

  • Assuming 15k balance transfer and a savings account with rate of 3.5% these are the numbers: This also assumes a minimum payment of 2.5% of the balance transfer amount.

    Pay off Vehicle Loan (assumed I-rate of 6.8%)
    You would save $468 in interest
    You would earn $138 in interest from savings account (After taxes)
    For a net of $551 (after 75 fee) or $46/month

    Put all in savings:
    Earn $296 in interest after taxes
    For a net of $221 or $18.50/month

    Many would argue that you would earn much more than I calculated on the auto loan. But I have calculated the interest saved as if you did lump sum rather than equal monthly payments toward principal.

    Excel makes complicated things like this easy and pretty much tells you the logical answer. For someone willing to accept risk it is worth it as it is “free” money.

  • I just wonder about the people who bash making $200+ by just cashing a check, making 7 on-time payments and a lump sum payment. Are these the same people that will work for days setting up, running and tearing down a yard sale for the same amount of money (or often less).

    I’m not bashing yard sales or working hard for money, but sometimes you need to take a calculated risk to make some money without spending hours doing it.

  • Boy, it doesn’t seem like bashing, just risk adversity. Different strokes, different folks.
    BTW, yard sales can be as much a social event as for sales 😉

  • Cleverdude,

    I don’t know that it is bashing…it just doesn’t seem like the best use of the money in my opinion. One misstep and the risks outweigh the rewards.


    That makes complete sense. If you can swing the payments for 7 months and have the vehicle paid of at 0% interest you are far better off than “investing” the money. Talk about a calculated risk. I’d say the pros outweigh the cons on that one.

  • Dude,

    Why not invest 10-20% of it in a mutual fund, another 10-20% to your retirement fund and whatever is left to your savings fund?

  • I just wrapped up one of these this past month from Citi. It was the first time I tried it and to be honest, it was a lot less work than I thought it would be. My deal was one of the old 0%, no fee BTs for 12 months from the transfer. I ended up taking $21,500 of Citi’s money and putting it in HSBC in late August 2007. My monthly payments were in the $320 range in the beginning and dropped to the $280s by the end (I paid off the balance in July to avoid any overlap issues). I haven’t run the numbers but I probably made around $1000 before taxes. Not too bad for about 30 seconds of work a month. In fact, I just received two more offers from Chase and BOA on old unused cards this week so it looks like I’ll be jumping in again.

  • I’m just don’t like that much risk. I recently thought I had made an on-line payment, but the system didn’t record it and I didn’t write down the confirm notice. The next think I know the interest went from about 6.8% to 23%. After a few phone calls they reversed it. After all, I could just move the balance. But, still it only takes one boo-boo. Anyway, I wouldn’t recommend it unless you are extremely diligent.

  • Do you have to have a credit card balance to take advantage of these 0% CC transfers, or do you just utilize the checks? I would imagine you also watch the grace periods and make sure you payoff early so as to not receive any fees or penalties. I would really worry about those fees. How much have you made through this arbitrage process?

  • @Scott, they actually sent me a checked filled out to me directly. I tend to just shred any checks sent to me before even reading the offers (as to avoid temptation).

    I get an eBill through Bank of America from Citibank, so I’ll definitely pay on time. I also have notifications via Quicken, which I check daily, so I won’t miss those either.

    This is the first arbitration where I’m sticking it in the bank. The last one (linked to in this article) was used to avoid paying interest on our car loan by paying it off early (then paying off the credit card before the special rate ended).

  • A bit too much of a hustle to me for too small a gain, but I did entertain the idea for a while as it sounds like fun. I don’t see much risk as long as everything is automated and money is available. Paying off the car would only make sense if you were absolutely sure you could save the same amount within 0% period or if you could be 100% sure you could transfer the rest to another 0% offer at the end. But it is a bit of a risk.

    “Why not invest 10-20% of it in a mutual fund, another 10-20% to your retirement fund and whatever is left to your savings fund?”
    Yes, and you could also take it to Las Vegas in hope of tripling the money…
    Dude covered it in the post. It is kind of obvious. You need the money within a year to repay everything. Who knows where the market will be in a year?

    “and credit card is the worst debt anyway!”
    I wouldn’t go that far. Maybe in terms of interest rate and also in terms of stupidity involved in buying more than one can afford. But if you look from the point of view of what can happen in case of default, other things would be more unpleasant. Personally, I’d put IRS at the top. Credit cards carry high rates, but it is an unsecured debt that can be discharged in bankrupcy. Not so with government. Also while mortgage may be considered “good debt”, if one takes more than what one can afford, one can lose a home.
    Disclaimer: no personal experience with debt other than boring 30 year fixed mortgage that is paid off and a car loan on my very first new car paid off ages ago. But this is pretty much what I’ve heard.

  • Kitty,

    I agree with your comment re: unsecured credit card debt is not the worst debt.


    Really enjoyed your yard sale comment. I acknowledge there is some degree of risk, but it’s very minimal. I’ve done this is in the past and have never had an issue.

  • I notice that 100 percent of the time the people who naysay credit card arbitrage are the ones who have never done it, and yet they claim to have loads of opinions and experience as to why it is not worth it.

    Only the people who have tried it are the ones that are truly able to give useful advice. Most seem to be successful – I have rarely ever heard of someone failing with credit card arbitrage, I only hear success stories. Yet, usually people tell us bad news, not good news!

    On the other hand, as more and more people publicly brag about their credit card arbitrage, the more the companies will catch on. At one time, this credit card arbitrage was a secret schemed up in homes by geniuses.. now it is public information. Not so intelligent to publicly admit and brag about it!

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