I was over at Stephen Fung’s blog and noticed he posted a story on a promotion from Citibank MasterCard. Right now, Citibank is offering 0% balance transfer until October 2007. Whenever I read about these promotions, I always get an evil smile because it’s a great way to make some money off the bank’s back.
To get the promotion offer, go here and enter access code N6T. It should only take a few minute to complete the application. Make sure you don’t get the credit protection or you’ll lose money on this deal. There is a field for you to fill out the balance you wish to transfer from other credit cards. You can fill that out now or wait until they send you the credit card and balance transfer checks.
Now how do you make money on this deal? I’m going to use this MasterCard to pay off the balance of my TD Visa, which is currently around $10,000. The money I would have used to pay my Visa balance is not free for me to use for anything I want. A financially irresponsible person would spend it on butter. I plan to use the saved funds to make money.
I could put the funds into an Interest Plus saving account at PC Financial â€“ it pays 4% interest if your balance is over $1,000. When October 2007 rolls around, I’ll withdraw the funds, pay off the MasterCard and keep the $400 interest. Citibank will require me to make a minimum 2% monthly payment in order to maintain the 0% internet rate. Therefore, I’ll have to pay $200 the first month, $196.00 the 2nd month, $192.08 the 3rd month, etc. Assuming this starts in December I will have pay back $1992.67 by the time October 2007 rolls around. Therefore, my total out of the pocket expense to do this deal is about $2000 (paid out monthly) and I’ll make $400. That works out to a 22% yearly rate of return. That’s not bad for a zero risk investment.
If I want to accept some risk, I can put the saved funds into the stock market. They say Google will hit $600 a share by the end of next year. Google is trading at $500 right now so I can buy 20 shares. Assuming Google does hit $600 by Oct 2007, I would net $2000 for an over 100% rate of return. Of course, the shares can also drop below $500. Then I would end up losing money.
Another option is to put the $10,000 into my RRSP (IRA or 401K in the US). That will trigger a $4,000 tax refund so I will only have to come up with $6,000 to reply the loan. Instant 40% gain with a 100% safe investment!
If everybody does these types of deals, no credit card company would offer these types of promotions. The fact of the matter is, these promotions make the banks a ton of money because when the 0% period is over, the person cannot pay the full balance off. That’s why you see so many offers like this, especially around holiday time.
If you’re making monthly payments on a high interest credit card, it maybe worthwhile to apply for this promotion. I said maybe because many people who take out loans to pay off a credit card end up racking up the card again, thereby getting into more bad debts. If you’re that type of person, then cut up your current credit card before you get this one.
Now I just have to put up with weekly phone calls from Citibank telling me why I should get their credit protection.