Tuesday, October 11, 2005

Credit Card 0% Offer #3



Well, that didn't take long.

No sooner did I close out my last 0% credit-card arbitrage play than Chase came after me again. It was this past Saturday, in fact — about one day after I'd blogged about closing out Arbitrage #2.

The postman delivered yet another four balance-transfer checks into my hands. Once more, my pals at Chase are offering me 0% percent interest, on any transferred balance, for ... well, for not very long.

And they've changed the offer in a few important ways.

For instance, let's take a look at how Chase has played with the phrasing of their offer's terms. Following is how the term was spelled out in my previous (February 2005) offer:

...save with a low promotional 0% fixed APR through your last billing cycle that ends before November 1, 2005.

And the new offer:

...to get a low promotional 0% fixed APR until the first day of your billing cycle that includes April 1, 2006!

Convoluted enough for you? Me too. But as best I can tell, it's just a different way to say the same thing. Basically, what it means is that I can use their money rent-free through early March of 2006. Checking my calendar, I see that that's a period of only 4 full months from now (allowing some time for the check to clear, and so on).

Bah.

And as before, that's some pretty tricky wording — well, really tricky — because all many consumers will see is:

...get blah blah 0% fixed APR blah blah blah blah until blah blah blah April 1, 2006!

And it gets better. Now the microscopic print at the bottom of the letter tells me that Chase has jacked-up its fee for this magnificent promotional transaction. The previous offer's maximum fee was $50. Now it's $65. Hey, bankers have to pay for gas, too, right?

(And in an apparent attempt to stay ahead of inflation, the folks at Chase have also recently raised my credit limit by more than 30 percent. Thanks, guys. Way to do your part to keep the American Consumer on course.)

My Decision

Some numbers crunched in an Excel spreadsheet tell me that given the small time period of this 0% offer, I stand to earn interest (via ING @ 3.4%) of just over $120. After taxes, that'd be about $104. Then take away the $65 fee, and I'm left with a profit of just about $40. (In this scenario, I'd be making the monthly card payments from funds other than those I've borrowed from Chase.)

Now, I know that Emigrant Direct savings accounts currently offer 4% interest. But I don't have an Emigrant account. My previous two attempts to open Emigrant accounts online have both failed, and to be honest, I'm a bit too occupied with other things right now to call their 1-800 number and try to open an account that way. But even with Emigrant's better interest rate, arbitraging this offer from Chase would net me only about $58.

So I believe I'll pass on this one. If the term were longer, I'd probably take them up on it.

Once more, though, I'd like to point out to readers: If you're going to arbitrage credit-card offers like this, you must take care to understand all the terms, and read the fine print!

Just because you receive multiple offers from the same company doesn't mean all the offers are similar in terms.

Labels:

— Posted by Michael @ 12:06 PM








23 Comments:
 

$40 is definitely not worth the hit your credit score will take.

Anonymous Anonymous
, at 6:45 AM, October 11, 2005  
 

I was *just* looking at a similar offer from chase today that I got a few weeks ago...taking a really good look...and noticed the same thing about the "first" day. I was totally thinking that it was a very unsexy offer. Of course I didnt even get to the increase in fee! I'm still waiting for a decent arbitrage offer...oh well. late to the party ;)

 

It's obvious that Chase read your blog, saw you were done w/ their first offer, and thought they better send on a second. ;)

Anonymous,
that's only really a concern if you plan on borrowing any time soon.

 

Yes, maxing out a credit-card to do arbitrage will certainly ding your credit score. If you're not looking to take on any new mortgages, loans, or installment borrowing in the meantime, though, this shouldn't much matter.

What I'm not so clear on is how it would affect, say, one's insurance premiums. Often, those take credit score into account, too. So if your homeowners' insurance renews annually, does the insurance company check your credit score annually, too? How about for renewals of auto insurance?

If this is the case, the arbitrage certainly could end up costing you, assuming your insurance premiums get jacked up when they see the lowered credit score and/or maxed-out card balance(s).

 

Just open an Emigrant account by mail: http://www.emigrant.com/EmigrantDirect/AppByMail.html
(URL from the ED front page - "Open an account by mail - Click Here")

That's what I ended up doing after trying to apply online. I called their 800 number and apparently they've got some sort of soft credit check as a part of the online application process that is notoriously likely to fail, even for upstanding citizens like you and me.

After a week or so, I had my brand new Emigrant account.

 

Nathan,

Funny you post that. I mailed off my Emigrant application this morning, as a matter of fact.

 

I just got the same offer in the mail the other day. Looks like about the same terms as the last offer. Other cards have offered to take the balance from my Chase card (no xfer fee) for a year and so I did. That lets me keep the $$ in the bank for a year and makes the whole scheme much more lucrative.

I've got about $20,000 rolling now and Chase just offered another set of checks which will let me roll another $20000 onto the savings account. At about 4%, thats about $130/month for doing nothing but paying bills.

Why do credit card companies do this? Do that many people default or spend all the credit and get neck deep in debt?

I did the numbers and should I somehow miss a payment and default, then as long as I've been doing this successfully for 6 months then this scheme will pay for itself in the exhorbitant default fees and interest you'll get charged. Its sorta like gambling but there's not much luck, mostly skill.

Anonymous Anonymous
, at 3:17 PM, October 12, 2005  
 

Anonymous said,

Why do credit card companies do this? Do that many people default or spend all the credit and get neck deep in debt?

Well, if they were losing money doing it, they wouldn't be doing it.

Lots of people are already neck-deep in debt; it isn't the 0% offers that get them there.

 

From a recent Citibank ad:
"We may also increase the promotional rate if you fail to make payments to ANOTHER creditor when due."

It's not worth playing with anymore.

Anonymous Anonymous
, at 8:09 AM, October 13, 2005  
 

Like I've said: You have to be careful when you try these things. And "careful" would include making all your other credit / debt payments on time. Or early. Without fail.

In my case, there aren't any other creditors, aside from my mortgage company. And they get paid automatically, electronically, and on the same day each month.

 

$130 a month? That's worth doing in my book. Below $100 and you start to lose my interest though.

 

For a transferred balancwe 0% interest for a while and then the rate goes on as usual.

 

Well, I thought I'd mention one catch to you all that I noticed while talking to one of Chase's reps. Make sure that your balance is completely paid off *for a statement period* before initiating the new 0% offer. I had recently paid off the account and was preparing to take them up on another offer, and I asked (I'm paranoid when it comes to credit card companies) if I needed to wait until the statement closing date to make sure that they credit the account a 0 balance so I can get the full 0% offer. It turned out that they did want the statement to close, otherwise they would credit my earlier payment towards the new 0% offer...leaving my old balance to go to some absurd rate. And I wouldn't know it until I got the bill. You have to watch these folks carefully.

 

Still, I'm trying to figure out how the CC companies make money with these offers. Or is it considered a promotional expense that somehow brings them business in the end? They wouldn't do it if it didn't make them money - or would they? Maybe its some sort of ploy to get people with good credit scores on their rolls, so that their average customer credit score is hi enough to make some sort of internal performance metric.


Any people working at CC companies reading this site want to enlighten us?

 

another concern/issue with Chase...it takes 2 monthes min to pay off a balance. If you pay your total balance off by the due date you will still have interest to pay. This is because Chase has decided that interest accrues during a total billing cycle. Example: your billing cycle is the 15 to 15 of a month. They send the bill on the 16, your due date is the 5. If you pay the bill completely, not just the min, on the 1 (meaning when chase deposits the money in your account). The next month you still must pay interest that accured from the 16 to the 1.
While this is legal I find it immoral. When you see total due you assume that is complete total. Many other credit cards in the past have stated that if you pay off by the due date then this 'residual' interest will be canceled.

 

Excellent blog topic. I've been doing this for 3 years. Tactic: Obtain as many 0% cards at one time and "balance transfer" the max amount to checking account. With 3 ~ 4 cards that usually adds up around 60K. Verify the rate is good for at least 6 mos. Using the funds buy a 6 mo. CD (etradebank), pay back the cards after the period, & end up with a profit of about $1000 (-previous transfer fees @ about $50/transfer). Sounds good, eh? Went to refinance my home, and suprised to see my excellent FICO score of 830 drop to 745! Exact reasons: "Too many inquries", "Length of credit history too short", "Too many accounts opened", "Proportion balances/credit limits is too high". ALL because of "this game". However, my Homeowner's/car ins. premiums remained stable, and still received the best avail. rates on the refi and a new car loan. So thanks Chase! and First USA, and Discover, and MBNA, and...
~caligirl

 

How long would it take to increase my credit score to it's previous score after paying off the money I owe the credit card company?

 

Loi Tran,

I don't know the answer exactly, but I would guess it'd take several months. Like perhaps 3 to 5.

I've not really monitored this, because in my case, I haven't needed a "perfect" credit score for any reason. No major purchases recently, or in my near future.

 

In case you're playing this game and then find yourself wanting to buy a house - you'll have to stop this. I read in a column in the NYT that to maximize your FICA score, don't pay all your balances off completely. Rather leave a little - say a couple hundred on a few accounts. According to the same column, its OK to leave all the accounts open without harming your score. Obviously, your score won't improve for a couple months.

 

Started out with Wachovia, then that was sold to First USA, then Bank One, then Chase. Now that Chase has it - terrible, bad, not so good, screwed, and got the shaft. These words describe the experience today. After being a card member for 10 years, interest moved from 7% to 27.99 % when due to Thanksgiving, I was late on a payment by 6 days and that was the only one late payment in as many years. My typical payment pattern is to pay a month in advance, but alas, this was not the case for November 2005 (Dec. payment) and now... ~28% interest and the Chase rep says she had seen them tag people for as much as 36% . Closing my account and will never do business with Chase Bank One again!

 

I heart the big orange (ING) something fierce myself -- but I think there may be more effective way to deal with the rate arbitrage.

Namely: Open a treasury direct account.

Now while it is great to be receiving 3.9% from ING, your interest is federal and state taxable, meaning that your effective rate of return (assuming no transfer fees) should be:

3.9% * ( 1 - Blended Tax Rate)

or, if you're working a 28% blended tax rate, your effective rate of return is ~2.8% or so.

In comparison, T-Bills are state, local tax free. So if you're living in a place like NYC going the t-bill route will save you a couple of bps.

... Why T-bills, and why now?

I looked on line the other day (www.treasurydirect.gov) and I found that the treasury will not only sell you t-bills, but they will automatically re-invest the money for a set period of time.

And even better, it looks as if the treasury is now offering 28 day bills (current yield: 4.140%).

The only issue is that the treasury department will only let you purchase in $1000 units.

... So here's how I'm planning on trying it.

1) Open 12Mo 0% card.
2) Pull cash, compute out min payments over the entire 11mo period. Put that amount (plus a small cushion) into ING Direct. Schedule automatic deposits into bank account.
3) Purchase x $1000 28Day bills (avoids interest rate exposure). And schedule automatic investment for 11 periods.
4) Periodically, move interest proceeds back into ING Direct.

Anonymous Anonymous
, at 4:03 PM, January 13, 2006  
 

For every one of us that does it right, there are probably a dozen that wind up much deeper in debt then when they started. That's why the offers keep getting made. That, and many card companies do not seem to have the ability to identify those of us who make money doing this.

I currently "owe" 140,000 dollars. (you read that correctly), to Chase and Bank of America. That earns me $20.00 per day at such fine institutions as HSBC/EMIGRANT Direct and GMACBANK.com.

I asked for a $100,000 credit line and was asked to show a liquid net worth of $5 million. I don't have anywhere near that, but nevertheless, they approved me for $75,000.

Chase asked "what do you do with all of your credit" when I applied for a card, and I told them that I take their money and put it in the bank until the offer expires. The response? "Oh. Well, you have 5 cards with us, would you be willing to move your available credit from one of your other cards to the new card? I said, "Sure. My other cards are not offering 0 percent so lets put all but $500 onto the new card, that way I can move the credit back without opening a new account in case the old card makes me a good offer later."

They just don't care.

By the way, set up your chase account to automatically pay the minimum every month and you never have to worry about missing a payment except for the last one. That maximizes the float since they take the money out on the last day. Just make sure you have sufficient funds to cover the check!

 

Funny how I stumbled onto this blog. Just got a 0% offer the other day in the mail thats good till Feb '09. I have great credit score and have been getting these types of offers ever since I've had credit. And then it hit me "Hey dumbass, why don't you write some cash advance checks on one of your other accounts, put it in a high yield account, then pay off the balance at the end of the promo period". So I searched to see if anyone else had experience doing this. After finding this site I recognize I'm a little late to the dance but glad to see it still looks possible and effective if the mechanics are set up properly.

Given a 12 month plus promo period, what would you recommend in terms of vehicle? CD, T-bills high yield savings account?

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