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.