Last week I talked about how to use 0% balance transfer credit card offers for debt reduction. Today I thought I’d talk about a different angle — using 0% balance transfers to make money. In short, you just need to get your hands on the money from the balance transfer money then stick it in a high-yield, online savings account so you can collect interest.
Accessing the balance transfer money
The easiest way to access your credit line is to request a balance transfer check from the card issuer, and then simply deposit it in the bank. Citi has traditionally been the easiest in this regard, though I’ve also heard that you can get balance transfer checks from Chase.
If you can’t get your hands on the money by depositing a balance transfer check, then you’ll have to get a bit more creative. Here’s one possible scenario…
If you can’t get your hands on the money right off the bat, you’ll need another credit card (let’s call it Card A). The good news here is that you don’t have to be carrying a balance on this card. In fact, you really don’t want to have a balance even though you’re technically doing a balance transfer.
When you apply for your 0% balance transfer credit card (let’s call it Card B), simply request a balance transfer from Card A to Card B. This causes the issuer of Card B to make a payment against Card A, creating a negative (credit) balance. The next step is to request a credit balance refund. In some cases (e.g., you used Citi for Card A), you can do this online. In other cases (e.g., AmEx as Card A) you may have to call to make your request.
Once you get the money, you’re ready to proceed…
Turning a profit
This is the easy part… Simply deposit the proceeds of your balance transfer into a high-yield savings account (click through for a rundown of the best online savings accounts). The earnings from the account (minus taxes) represent your profits — just be sure to minimize your fees (below) if you want to maximize your return. My current favorite in the online banking realm is FNBO Direct.
Balance transfer gotchas
Before you wade into this, there are a few things to keep in mind…
First and foremost, fees. More and more balance transfer offers come with fees nowadays. While it’s still possible to find no fee 0% balance transfer offers, they’re generally quite short (typically around six months) which means means you’ll have to roll the money into new offers more frequently than with longer term offers.
Also keep in mind that virtually all 0% credit card offers are contingent on you making your minimum payment on time each and every month. If you slip up, you interest rate might shoot up to their normal levels. Be sure to read the fine print.
Another potential downside is the impact that this will all have on your credit score. When you max out your credit lines, you increase your percentage utilization. And increased utilization can reduce your credit score. The good news is that this is a temporary thing. As soon as you pay of your balance, your utilization will fall and your credit score will rebound.
Where to start
I maintain lists of 0% balance transfer offers both here and over on FiveCentNickel (see 0% credit cards on FCN). If you’re okay with a shorter promo period, then check out my list of no fee balance transfers.