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Creating an Interest Rate Arbitrage Opportunity with 0% Offers

Taking advantage of credit card companies for their offers is a time tested strategy that you can benefit from.  One of the best offers out there is the 0% balance transfer offers.  There are other articles that we have used to discuss how you can take advantage of these offers for purchases or balances on your credit cards.  This article will discuss the power of interest rate arbitrage and how you can use credit card companies’ 0% offers to create a profitable opportunity for you!

The offers range, but most of them give the cardholder an introductory 0% rate on all new purchases and balance transfers.  When you do a “balance transfer” most card companies will issue a check to you in your name for the amount that you are transferring over.  Some cards, depending on your credit, will allow for up to $25,000 to be used in this manner.  Some card companies make the process much easier than others, but you can request the balance transfer check and some companies will drop the check in the mail to you.  As soon as you receive it, you deposit in a high yielding money market account.  Assuming you can find a money market account yielding the short term rate of 4.5%, you could make a couple of dollars off of the credit card company lending you money for free (0% interest rate)!!

See examples below, that highlight different balance transfer amounts deposited into a high yield money market account for 12 months at a time.

Not bad for just making a phone call or filling out an application!

By Woody Alpern

CPA and Registered Investment Advisor