Making Money Off Citibank MasterCard
written by John Chow
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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 – 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.
*Update - The above deal is for Canada only. Thanks to Jon Waraas for finding the US version.
*Update to the update - Just read the fine print: The transaction fee for balance transfers is 3% of the amount of each balance transfer, $5 minimum, $250 maximum.
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I am sorry to say this John, but I never understood guys who carry the CC balance. It is insane to pay 18% on a balance when you can pay only 4 to 6% if you pay you CC balance with a personal loan. Why would anyone want to pay 18% when they can only pay 6%?
Well, I understand that some PPL cannot get a loan… but I really do not think that all of those carrying the balance are not able to get another source of credit.
Nikolai
I’ve had the bank offer to convert my own existing card to a 0% intrest rate card if I transfered a lump sum over to it.
Although the bank may lose out on a few percentage points in interest for those who pay off the balance before the deadline. However the result is better customer loyalty or maybe just making people see a new way to use their CC.
What a tell! Thanks John.
Nikolai - It’s amazing how many people live beyond their means. But with credit so easy to get and in a society that promotes instant gratification and buy not pay later, it’s not hard to see how people can in over their heads.
[...] Original post by John Chow and software by Elliott Back [...]
Credit Cards rock. I can’t believe they let me use THEIR money all month. And then when I pay them back in full at the end of the month … it’s free!
Meanwhile MY money is working for me all month long.
You can’t do that with a loan.
Nice. I have a cash back Credit Card. I do my best to pay it off every money. They pay me to use them.
That’s too complicated for me :S - I was lucky though, I got (in Aus) a 1% CitiBank Balance Transfer Loan and it’s 1% for the life of the loan
I recently had a similar idea. I have an American Express card that offers 1 percent back on all purchases. My limit on the card is 5000 dollars. My plan was to buy 500 dollar money orders at the local grocery store for 500.50 (50 cents being the stores print charge). Charging 5000 dollars to my Credit Card a month would cause me to get 50 dollars back. Then at the end of the month I would cash the money orders and pay the bill off. Total profit would be the 50 dollars in rewards minus the 5 dollars to print the 10 money orders.
Matt $ - There is one problem with your scheme. You can not buy a money order with a Credit Card. And if you take a cash advance, interest is charged on the day you take the advance, thereby more than killing any cash back you can earn.
David - Cash back Credit Cards rule. I use a TD Gold Visa. It gives me 1% cash back with no cap. Most cash back card put a cap on the payback you can make. For example, the CIBC cash back Visa caps you to $50,000 of charges per year. Charge more than that and there’s no cash back on the amount above the limit.
I charge over $100,000 last year to my TD Visa and that gave me over $1,000 cash back at the end of the year. The nice thing is, it’s not consider income so it’s not taxable.
[...] This is an update to my post about Making Money Off Citibank MasterCard. The purpose of this post is to show how banks use these 0% balance transfer promotions to put you in the Credit Card trap. Banks are in the business to make money, not lose money by giving out zero interest loans. They have many tricks up their sleeves to tack on interest or fees to your account after giving you the freebie balance transfer. [...]
John,
You also have to consider the investors marginal tax rate. I realize that since you are an entrepreneur, your marginal tax rate may be lower than others. But say some of us here are in the 40% margin tax bracket. The 4% interest in the PCF financial account is 100% taxable, which means that you $400 that you gained, is really $240 after taxes. Still a decent return, but not as great as originally anticpiated. For those of you with higher marginal tax rates, you should look into using this money to invest in your RRSP instead of a non-registered savings account. Where as those of you in lower tax brackets would have an advantage using the high interest savings accounts.
In my opinion though, just for the fact that you need to APPLY for this Credit Card and add an additional item to your credit report, the gains do not justify the risk.
Joe
http://www.StingyFinance.com
Normally you can’t but money orders with credit but at my local grocery you can if you buy your food with it. I have done it a few times.
Matt $ - Wow! Really? Is there a limit of the size of the money order you can place on a Credit Card. If they offer that here with no limit I take out a MO for the limit on my Visa and pay it off every month with the MO.
StingyFinance - Yes it does generate an extra hit to your credit report so you don’t want to apply to these too often.
John:
Can you clarify…are you saying you can transfer $10000 from the new Credit Card to your TD Visa when your TD Visa had a much lower balance, thereby you can request a refund from TD Visa on your overpayment and use that cash to invest? If so is this really possible? I always thought you can only transfer the amount that is really owed but not more.
orange peel - No, what I am doing is using the new zero interest credit to pay off my TD Visa. This free up the cash I was going to use to pay off my Visa. I can not put that cash into investment.
[...] This seems to be the week for receiving old and new Credit Cards. TD Visa sent a couple of new cards for Sarah and me. This is my default Credit Card that I charge everything to because it gives me 1% cash back. Citibank also sent me that MasterCard I applied for back in November. All new Credit Cards have to be activated before they can be used so I spent 20 minutes in voice mail hell trying to get the cards unlocked. [...]
[...] It turns out that the Citibank MasterCard I applied for went ahead and transfer the maximum limit of $5,000 from my Visa to the Citibank MasterCard. I thought I had missed the cut off date to do the zero interest balance transfer but it now appears not to be the case. When I went to check my mail today there was a letter from Citibank stating they had indeed transferred $5,000 of Visa balance into the MasterCard and that the zero percent interest will be good through December 5th, 2007. [...]
Too bad the access code doesn’t work anymore. I got one but it’s 0.9%. Code is P6F
Hi John,
I have tried to use the “go here” link and type in the code “N6T” However, its get me error message. I have tried to contact them through phone but i was unable to get the 0% deal. Could you please help me to get the deal?
Thank you very much
Veronica
I believe the promotion is over. Sorry.
[...] in November, I posted a story about Citibank offering a MasterCard with a 0% balance transfer. The offer is a great way to get the bank to loan you some free money. [...]