Tuesday, October 16, 2007

CC Arbitrage Experiment - Update 1

In a previous article, I mentioned that I was starting an experiment in Credit Card Arbitrage. So here's an update on how things are proceeding.

On September 16th, I signed up for my new Citi card online. It took about 10 days before I received the card. They assigned me $11,000 credit limit.

There was no specific information about their 0% balance transfer offer in that mailing. However, when I called to activate the card, the agent asked me if I wante to do a balance transfer. His explanaiton were a bit confused, so I didn't sign up right away. I could only have transferred a balance from a current credit card anyway (a relatively low amount). And I don't want to give Citi the number for my other credit card anyway.

I few days later, I called again, this time specifically asking about the balance transfer offer. The agent was even more confusing. She first told me that the offer was free, and that it would be faster to do the transfer if I waited for the cheques. Then, when I specifically asked about the fees for using the transfer cheques, she mentioned that there might be a fee of 1% (she didn't sound confident, and the general documentation for the credit card indicated a 1.5% fee for using the cheques). She told me the package containing the cheques should arrive one week after the card itself did, so I decided to wait.

About 10 days after I received the card, I got a package containing cheques. However, the 0% balance transfer was not mentioned. Reading the small print carefully, I saw that the cheques would be treated as a cash advance. At this point, I was getting cold feet and decided not to go forward using those cheques.

Then, after another week, I received another package containing cheques. This time, it specifically mentioned the 0% balance transfer offer. The cheques mention that they are valid only until November 16th, and documentation provided with them mention that amounts withdrawn using those cheques will appear as "balance transfer" on my credit card statement.

Now, this is more like it. I wrote myself a $5,000 cheque that I have deposited in my account. As soon as it clears, I'll transfer it to my ING account to put it in a 4.25% 270-day GIC. This should give me about $160 in interest.

So even if there is a 1.5% charge associated with the cheque, I should still make about $85. Not much, considering the trouble. But this is an experiment meant to become more familiar with the process, so I wanted to reduce the risk even if it meant a smaller reward.

The lesson I learned until now is to be really careful and make sure the documentation is provided. Had I used the first batch of cheques, I would have been charged 1.5% for using the cheque, and this would have been a cash advance with the 19.9% interest charged from the moment the cheque was cashed in.

I will provide another update when I receive my first account statement. I expect to see that I have to make a minimum payment for my account, probably 2% of the total amount each month.


the Wealthy Canadian said...

Congratulations on starting your arbitrage. 3.2% of 'free' money is alright.

Esme said...

I didn't realize that we can get 0% balance transfer cards in Canada. That's great.

FourPillars said...

Interesting blog - can I suggest that you provide the full feed to RSS subscribers? I like visiting websites when I can but sometimes I don't have enough time.


Frog of Finance said...

esme: I found that 0% offer on www.redflagdeals.com

I will to add it to my favorite sites! :o)

Four Pillars: I will try to add the RSS feed.

Esme said...

Thanks. I will check out redflagdeals. Do you know if this balance transfer will have a negative impact on credit rating?