Recent events have reminded us that banks make money by taking in deposits at low interest rates and reinvesting those deposits at higher interest rates (either bonds or directly making loans themselves). When you see a credit union have a certificate special, that usually means it needs more deposits to fund commercial, residential, or personal loans to its members. This is a form of arbitrage. (Usually this works just fine, as long as your depositors don’t try to ask for all their money bank at once.)
With short-term interest rates now at 5% again, this brings back the possibility of credit card arbitrage to individuals. Borrow money with a no or low-fee 0% APR balance transfer, invest it in FDIC-insured banks at 5%, and you have significant rate spread. At that spread, borrowing $10,000 will make $500 a year, while borrowing $50,000 will make $2,500 a year.
Back around 2005, I was pretty heavy into this game as it was the equivalent of a 10%+ increase in my annual income. I knew all the ways that I could turn a balance transfer into cash. Some issuers gave out balance transfer checks, other issuers let you direct deposit a balance transfer into your bank account, and finally I could also transfer a balance larger than my actual balance and then request a credit refund via check. For example, I might have a $2,000 average recurring monthly balance as a regular customer at Bank A but then request a $12,000 balance transfer from Bank B. That would leave a negative $10,000 credit balance at Bank A, which they would send back to me as a check.
Interest rates have been very low for a very long time, and I haven’t used a balance transfer for a very long time. (There is a reason why credit card companies will give you 0% APR for 21 months, and it isn’t because they are nice people who enjoy giving out free loans. It’s because they get to charge you 24% interest after that introductory period.)
So, I ask you kind and intelligent readers: Has anyone tried to obtain cash directly via a credit card balance transfer recently? If so, what was your experience? What worked, what didn’t, and with which card issuer?
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Been thinking about this lately, very much, but almost all BTs I looked at are 3% BT fee, up front. So already you’re going to need to be hitting a big balance to make that back over 12-18 months, even ~ 5% interest. If anyone is finding otherwise, I’d love to hear.
I did this to float a student loan some years ago, and had the BT sent to a card with no balance, and they sent me a check, which I could request from the web site. It was multiple thousands, so I was concerned, but it worked out. Gone are the days of BT checks it seems, and 0% BTs.
There are still no fee balance transfers (see linked post), but all are currently from credit unions. I don’t know how big their credit limits go, I assume it is still linked to income and credit score.
I did a transfer with a 2% fee in 2019 with Capital One. I came out ahead, but interest rates started dropping and the resulting profit was less than I had planned.
Having 4 credit cards with 0% purchase APR. Putting cash in T-bills and CDs to earn 5% until the 0% expiration dates.
Come on Jonathan, you’re giving away all the secrets…. 😉
Many if not all CCs charge 3%-5% BT fees, so this is hefty…..+ my credit score began dropping like a rock when I maxed the Credit line… BofA is the worst, they closed my CC w/ $30k on it……yeah….. because they can… I can expect others will follow….,
Nobody seems to understand the question. The state of the game is weak. Anyway, the old play was to do a transfer to a Citi card and ask for a refund check by mail. I used to do NFCU to Citi at 0% and put it in FNBODirect for 6%. Auto payments were easy as checking was linked to savings. I don’t know if Citi still works but I suspect it does. Citi is slow.
Lou, where did you find FNBODirect for 6%? Thank you.
Way back in 2007 ?
It’s kind of a pain but still possible if you get creative. Here is my method: I had an old Citi card with a zero balance and I issued a balance transfer to that card from a new non-Citi card with no BT fee and 0% APR. This gave me a credit (negative) balance on my Citi card, like an overpayment. I then requested a refund of the credit balance online and Citi mailed me a check. The whole process takes a few weeks but it has worked a couple of times for me now.
This was the way. No idea if it still works. I last did it in 2016, before the age of low savings account rates.
When did you last do that, Anthony? I think I did it in 2019 or 2020 with Citi and maybe Discover.
Right now i can get 20k direct from BOFA into checking at 0% with 3% fee through Apr 24. I could put it in an NFCU CD at 5%. Easy $33 a month minus taxes. I might do it though, for nostalgia.
What about the taxes on the CD(unless the cd is in IRA)? With the taxes you haave to pay, is it really worth the hassle?
I’m not understanding this. How can a balance transfer from your non-citi card (presumably with a balance) to the citi card (which previously had no balance) produce a negative balance (credit) on the citi card? Wouldn’t the citi card have a positive balance in the example you gave if a balance was transferred to it?
The balance transfer is just a payment. You’re making a payment from the non-Citi card (which is offering a promotional rate to do so) to the Citi card. If the Citi card has a zero balance, then you have a negative balance after the balance transfer/payment.
Credit Card Arbitrage is how I found this blog back in 2005ish, been following ever since
I have no new stories, only old stories.
Bank of America gave me $40,000 at 1% for 9 months – cost me 3% with a max of $150
I put 30k of it in a Countrywide CD (remember them) at 5%
Then BoA bought Countrywide, and I paid BoA back with its own money. Good Times
the trick was back then, some balance transfers had max fees. I don’t think those exist anymore
Same here, I signed up for ING checking & savings and they offered at least 5%. I made $300 over the course of 15 months from the transaction. Rates and BT fees just seem to make it impossible anymore.
I took out nearly $80,000 of these offers, mostly with the 3% finance fee since I needed a bridge loan to cover an unexpected situation that occurred when I sold off a recent investment property. I simply did not have enough liquid assets to take me to the finish line, so this was the cheapest option and it worked like a charm. Though my credit score went from >830 down to about 730. Once the sail occurred and I started paying off the credit card borrowing, it has returned to the 810s.
There was nothing special or unusual to report about it. It was simply the lowest cost borrowing option out there and certainly the easiest.
And let it be a lesson to all of us. Though a rainy day fund seems a costly waste of time when the times are good. You will never know when your kid gets a catastrophic illness (malignant brain tumor) which will wipe it out overnight and then you find out there’s an oil tank buried under your house that requires a significant portion of the home to be taken apart, tank removed and then rebuilt, to be able to sell it. So if you think $100K is enough when your net worth is about 3 million? Think again!
Following…
CF is in the house!
Following…
Also used to use Citi to get refunds but haven’t done it in close to 6 years.
Also starting to think it might be worth it, but used to get offers with capped fees (i.e. 3% max of $250) which made it an easy way to lock in the cost and then just get the best rate accounts.
I essentially used the methods Jonathan outlined to obtain balance transfer “loans” from my credit cards. Then, when deposit rates were non-existent, I used the cash to sell cash-secured puts/covered calls.
Last Nov, when BofA offered a bonus cash-back day (also learned about thru Jonathan) I made a large payment to the IRS (estimated taxes which was essentially an overpayment and I have a refund due) and the cash back bonus more than offset the payment processor’s fee. More importantly, the credit card had an introductory 0% APR on purchases and balance transfers.
I haven’t done arbitrage since 2009 or so, but my method of last resort was this: I have an account at a CU that allows me to go online and instantly transfer funds from my CC into my checking account. So for instance I’d transfer $10K into checking, creating an instant CC balance of $10K. Then I’d make a $10K BT from the new card to pay off the CU CC. Finally, I’d transfer the $10K in checking to the bank offering the high-interest rate. Since the CU CC starts charging interest immediately, you want to time the BT to arrive ASAP.
I too found your blog back in 2007ish and as a new college grad, was envious of people with hundreds of thousands in CL that could be arbitraged. I did ok with half a dozen cards back then. These days, I mostly pull the money off business cards that come with 0% on purchases for 12-18 months (so the balances don’t show up on your personal credit report). With high spend requirements to get sign-up bonuses, this is just an icing on the cake. But you have to be careful as most issuers are now much more risk averse these days – I had AmEx FR recently, likely, at least in part, due to high balances. I’ve had BofA freak out and close accounts on me in the past when they saw higher utilization on my personal cards. Asking for Citi refund checks can get your accounts exposed to eyeballs (if you run any other Citi plays) and so on.
A 40% tax ruins any profit
I did this recently, and somewhat accidentally – so it isn’t the easiest. I first got a HELOC, and just withdrew $35k from it into my checking account. I then did the balance transfer to another bank that offered 0% and no fee. Doing it this way is simple – but getting the timing right isn’t. I ended up paying the HELOC interest (8%) for two months waiting for the BT to complete.
Not sure if they are still doing this, but I signed up a couple months ago for a Wells Fargo Reflect card which had a 18-month 0% intro term and 3% fee for balance transfers and two “super checks” which I could write to anyone (including myself). I did a balance transfer to a credit card and used one of the super checks to cash out the remainder of my credit line to me. While the credit card transfer incurred the 3% fee, surprisingly, the super check did not. When I asked about increasing my credit limit and for more super checks, I was rejected and told that each account is only limited to the two super checks. It’s an interesting loophole as knowing what I know now, I simply would have cut the one super check to me for the full credit line!
I found this in the FAQ:
“When will the funds be available in my checking account after depositing my balance transfer SUPERCHECKSTM?
Funds are typically available the next business day when deposited into a Wells Fargo account. Balance transfer SUPERCHECKS may take up to five business days for funds to be available if deposited into a non-Wells Fargo checking account.
Am I able to get additional balance transfer SUPERCHECKS?
Balance transfer SUPERCHECKS cannot be ordered or re-sent. If you want to request a balance transfer but do not have SUPERCHECKS, you may access your account online to complete your balance transfer, or call 1-800-642-4720.”
From: https://www.wellsfargo.com/credit-cards/features/balance-transfer/