No More Free Money - Pulling The Plug On Credit Card Arbitrage

by golbguru on August 27, 2007

After a year long run with 0% APR credit card arbitrages, it looks like it’s time to pull the plug.

The sole reason for ending this free money run is the lack of *good* 0% APR offers to continue transferring the existing balances. Most credit card companies now impose balance transfer fees at about 3% of the amount of the balance transfered with no maximum limit and some have taken the “0% APR” terminology totally off their charts. All in all, the card companies seem to be making sure that people don’t milk them for the money with these offers.

In my case, some additional crap happened which has sort of ticked me off this arbitrage game. Here is how stuff unfolded:

  • Currently, I have balances on Citibank and Discover cards. The offers are coming to an end within the next few weeks.
  • Balance transfer offers do not allow transfer between two cards of the same kind (you cannot use a balance transfer offer to move your balance on one Citibank card to another Citibank card). So, I tried applying for a third party credit card (HSBC - 0% APR with balance transfer fees) and that got approved with extremely low credit limit and made it totally worthless - the net gain after taking taxes and fees is hardly worth the trouble.
  • Then, a few minutes later, I tried applying for a Discover card (Discover More Card) so that I can transfer the balance from the Citibank card. This application got rejected! Interestingly, I was chatting with their service professional through a live-chat service at the time of the application and she got back to me within seconds after I submitted the application informing me that it was declined. From the promptness of the decision, it was pretty obvious that it was rejected through some “automatic” criteria without any human intervention. My current credit score is 742 (which is not bad), so it had to be some other stupid reason on which they based their decision.
  • Then, after another few minutes, I tried applying for a Citibank card (AT&T Universal Card) so that I can transfer the balance from the existing Discover card. This card was approved, but again with a very low credit limit. Crap! so even this didn’t work out.
  • At the end of all this, I ended up with one rejected application and two useless credit cards and no feasible solution to transfer the existing balances.

It was more crap than I could handle peacefully and I decided to put an end to the misery by just paying off all the balances. Will keep an eye out for good offers in future.

By the way, a few days later, I received a letter explaining why my application for the Discover card was rejected and this it what it listed as the reason:

Credit History Established On Your Account

What’s that supposed to mean? It sounds incomplete to me.


Anyways, here is some more information on how credit card companies currently deal with 0% APR balance transfer offers. I had to go through all this before applying for new cards. :) Although, there are a lot of players in this area, I am just including the big ones.

  • Discover: Charges a balance transfer fee of 3% with a minimum of $5 and maximum of $75 (in some cases the maximum is $50). With the upper limit still in place, Discover cards with very high credit limits are still attractive - although not as attractive as before (you will still lose a small percent of the free money in fees). 12 month offers are standard.

If you get a $10,000 credit limit and transfer the entire amount and park it in an online savings account at 5.15% APY, your earnings before tax would be $515. After tax (assume 25% bracket) it would be about $386. After accounting for the balance transfer fee, you will have about $311 in your hand. That’s a pretty sizable amount; however, there are a few caveats.

From personal experience, Discover is pretty stingy with their credit limits. Plus, it has another new trick up it’s sleeve. According to their updated terms and conditions:

If more than 90% of your New Balance consists of special rate balance transfers, we may increase your Minimum Payment Due to a maximum of 4% of the New Balance..

Increased minimum payments are going to further erode your earnings.

  • Citibank: They have at least one no-fee 0% APR balance transfer offer on charts (AT&T Universal Card - not a referral link) that I know of (perhaps there are one or two more, but there sure aren’t many). So, if you are interested (and lucky enough to get a good credit limit), you may try this one out. Other than this particular offer, Citibank charges a 3% balance transfer fee with $5 minimum and no maximum. 12 months offer period is typical.

Cards with no maximum on balance transfer fees are not attractive enough for playing the arbitrage game. I wrote about this earlier when Citibank sent me the change of terms notice.

  • American Express: Typically, they charge a balance transfer fee of 3% with $5 minimum and $99 maximum. Plus, currently these guys don’t even have any 0% APR offers; the best they can do is a 4.99% APR on transfered balances till they are paid off.

If you get an AMEX card approved for less than $3300 of credit limit, your effective expense on the balance transfer will be 7.99%. There is no way that can be offset with a high yield online savings account (or any other place where your park cash will have sufficient liquidity and guaranteed returns). With a credit limit as high as $19,800, you are still looking at an expense of 5.49%.

That takes American Express totally out of the arbitrage game.

  • Chase: Read offers terms for Chase cards carefully. Their balance transfer offers are of 12 months, 6 months, or 3 months duration depending on how “favorably” they view your credit history. For example, here is a typical clause in their terms:

Elite and Premium Pricing: A 0% fixed APR for the first 6 billing cycles following the opening of your account… Standard Pricing: A 0% fixed APR for the first 3 billing cycles following the opening of your account.

Generally, balance transfer fee is 3% with $75 maximum.

Personally, I am not a fan of short term balance transfer offers - the gains are not much and you will need to look for another credit card pretty soon. Plus, I didn’t apply for Chase card after my experience above because I didn’t want to end up with another useless credit card with extremely low credit limit and 3 months offer period. That will simply put another card on my credit history without doing me any good.

  • Bank of America: Charges a 3% balance transfer fee with $10 minimum and no maximum. Unlike for the case of Citibank (where there are a few exceptions to their balance transfer fee policy), Bank of America’s balance transfer fee is applicable to ALL the cards it has to offer. So don’t waste your time looking for credit card offers from these people.
  • HSBC: These guys have a few good 0% APR cards still available. If I understand their terms and conditions correctly, they imply that HSBC Bank customers will not have a balance transfer fee on the cards for the initial offers, whereas non-HSBC customers will have a 3% transfer fee with $99 maximum. Make sure you read their terms and conditions very carefully. Offer term may be 6 months or 12 months depending on which card you apply for.

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{ 26 comments… read them below or add one }

1 moom 08.27.07 at 7:45 am

My most recent attempt to open a US credit card account resulted in a $750 credit line. So I gave up on this game too. Though my credit report goes back to 1990 the oldest card still open is 2002 as I left the US a couple of times in that period. Also they may well have some info somewhere that I am not a permanent resident or citizen?

2 Mary-Frances 08.27.07 at 8:36 am

I thought I would share my arbitrage experiences because they seem to be different in some respects.

Citibank Upromise: I signed up myself and my husband to get $50 referral statement credits, and ended up with a 12 month 0% BT offer with no transfer fee. They even sent us checks. We got credit limits of $17K and $19K.

Advanta Business: 0% for 15 months. $50BT fee. $25K limit. Could use up to $19K for BT. They will send you a check.

Amex IN Cards: Although you had no luck with Amex, their Amex In LA,Chicago, and NYC cards offer 0% BT for 6 months with no BT Fee. We got one of each of these.

Bank of America Visa: 0% for 12 months. $90 BT fee. $25K credit limit.

Chase Business: 0% for 12 months. $25,000 credit limit with $75 transfer fee. We each got one.

Washingon Mutual: 0% for 9 months. $75 BT Fee. $30K credit limit.

I haven’t checked our FICO scores recently, but the deals are still rolling in, and we’ve yet to be declined. We’ve never seen Discover Card be generous either–we avoid them now. Overall, Chase and Citi seem to be the most liberal right now. We have many accounts with them both. Bank of America used to be a good deal until they instated their no max on BTs. Every once in awhile, we’ll get a No BT Fee on an established account from them. I think it’s still worth it. We have about $40K in property tax sales that get 12%/year and the rest in FNBO for 6% for now. I’m not sure how things will change in the upcoming months.

3 Tim 08.27.07 at 10:45 am

my arbitrage is drying up too. mine was denied because of too many inquiries. the too many inquiries was a result of citibank pinging my credit report like 3 or 4 times when i requested 1 credit line increase.

4 Lazy Man and Money 08.27.07 at 11:29 am

I got started at the point they were starting to dry up. Realizing this, I just didn’t go through with the plan. It’s too much work and risk for the gain.

5 42 08.27.07 at 1:48 pm

Discover only gave me a $5000 limit on their 0% deal, and I wanted 10k; that’s with a high-700s FICO and about 10% debt-to-available. I guess they’re tightening the spigots a little.

6 Sun 08.27.07 at 4:43 pm

I have $100K borrowed money at 0% sitting in my bank that earns me some $500 a month, what’s not to love the free money?

7 golbguru 08.27.07 at 5:13 pm

Mary-Frances: What can I say… that’s awesome. And I am jealous. :) Enjoy the free money .. wisely.

Sun: “what’s not to love the free money?” - how about not having enough new credit card offers to transfer the currently held $100K? :) I would be interested in knowing what your strategy would be when you don’t get enough new cards to transfer your existing balances.

Unless you get cards and credit limits like Mary-Frances above, I don’t see many options other than to pay off the cards.

It’s not the free money that I “not love” - it’s the lack of good balance transfer offers. Probably you missed the part where I said that after 3 applications, I ended with two cards whose BT offers are pretty much useless because of the low credit limit and transfer fees.

And by the way, if the credit limit trend continues, I will need about seven more approved credit cards to transfer my current balances. And that still won’t guarantee a good deal because of the transfer fees. :)

8 Mary-Frances 08.27.07 at 5:51 pm

If you’re looking for high credit limits, try business cards. Most of them don’t even require you to have a business…go figure. They typically have a minimum limit of $25K. Just a thought.

9 Forex Trading Blog 08.28.07 at 1:39 am

In my view the credit card offers is something good but when you have no other choice to get money. Try to make everything possible not to take money from credit cards, better borrow from friends. I didn’t manage to make my financial freedom and now I am in big debts from credit companies. Don’t repeat my mistake please.

10 Kitty 08.28.07 at 6:55 am

Forex Trading Blog - you haven’t read the thread, it is about arbitrage - getting the money at 0%, putting it on interest-bearing account then paying off before interest goes up and keeping the interest. So, they are not making your mistakes, they are making money.

Personally, I’ve never got around to arbitrage, but I thought it a cool idea.

Mary Frances, a question. How do you get these property tax sales deals? Are you buying houses on sale for not paying taxes or is there a simpler way? Thanks

11 Mary-Frances 08.28.07 at 9:24 am

They are actually Special Improvement District (SID) sales. I live in Nevada, and here, people in some areas are assessed a certain amount of money to put in lights, roads, etc.. It’s any amount up to about $20K. People pay twice a year at a low interest rate until it’s paid off. When someone misses a payment, their SID is sold through a random drawing at a sale. The beauty of these is that you are the 1st lienholder equal only to property tax liens. To remove the lien, the person (or bank in case of foreclosure), must reimburse you for the SID plus 1% interest per month. If you’re not paid in 2 years, you get the deed to the house. They are wonderful.

12 dimes 08.28.07 at 10:19 am

Don’t you have like three Discover cards already? If I were them I’d take one look at that, see through your little game, and if you’re a deadbeat, tell you “Bwahahaha! NO!”

My method of “arbitrage” (deferring all purchases until right after the end of a billing cycle) works well enough for me, and with no hidden fees. But I made my millions with student loan arbitrage.

13 Nick L. 08.29.07 at 2:56 pm

I’m still having pretty good luck with it, but I can see it really coming to an end within the next couple years.

You can check out a site like to get all of the cards that are still offering cards with 0% transfers, and either no fees, or a max fee of ~$75.

The card companies really are making money with this so I hope to see it continue, but you never know.

14 Lulu 09.18.07 at 5:57 pm

This article has been included in the carnival over at How I Save Money so please remember to link back to it so the other articles can get some exposure.

15 me 02.13.08 at 5:38 am

Hey, after this long dry spell, i just finally received two offers for 0% BT, with NO FEE for any BT’s done in the first 90 days of the card’s opening! So it looks like they may be making a comeback! BT gamers unite! :)

16 Letting Agents in Enfield 08.12.12 at 7:05 am

i also have a sahara shopping card and they provide 40% discount valid up to 2 year and one thyro card for health checkup

17 jeffry 10.10.12 at 8:52 pm

Nice information to credit card users. thanks for your articles. have a great day.

18 Au Pair 12.26.12 at 11:11 pm

Nice information to credit card users and this information is very help to me.
Citibank Upromise: I signed up myself and my husband to get $50 referral statement credits, and ended up with a 12 month 0% BT offer with no transfer fee. They even sent us checks. We got credit limits of $17K and $19K.

Advanta Business: 0% for 15 months. $50BT fee. $25K limit. Could use up to $19K for BT. They will send you a check.

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