Citi Balance Transfer Offers: Free Money!
I normally only give my credit card statements a passing glance. All of my transactions are downloaded automatically to Quicken. However in my April statements I was glad I looked. My Citi Dividend card had an offer for 0% balance transfer until 11/2008, with a $75 max fee. Then I checked my Diamond Preferred card, it had an offer for 0% balance transfer until 11/2008 with no fee. While I often get these kind of offers with new credit cards, it’s rare to see them on existing accounts.
One of the nice things about Citi balance transfers is they will just send you a check or you can write out a check yourself using the checks that come with your bill and still be eligible for the balance transfer rate. Be sure to read your particular fine print carefully though as this can and does change.
The best way to use these balance transfer checks is to take the money and put it in a high yield savings account. This is called interest rate arbitrage. You might read in the newspaper about hedge funds doing it as well. The difference is that hedge funds borrow money from much larger sources, such as Japanese banks, at low rates and then invest that money at higher rates. In Japan, banks will lend you money for as low as 1% interest. The hedge funds then reinvest this money at European or US banks paying 3-5% interest and pocket the 2-4% difference. Obvious this practice is not without risk, as currency exchange rates can change rapidly.
Similarly, you can borrow from a credit card at 0% and reinvest at a higher rate. The idea is though, that you want to minimize your risk as when that balance transfer promo period is over, the rate skyrockets. For this reason I recommend sticking with FDIC insured high yield savings accounts. You want to be able to pay back the balance in full the month before your rate skyrockets.
With 0% and no fees, its a given that you will make money. How much depends on your credit line, your high yield savings interest rate, and the length of the promo period. So if the promo period is 1 year, you borrow $10,000, and the interest rate is 3%, you’ll make ~$300 for doing nothing more than making minimum payments every month for a year and paying in full in month 12.
