arbitrage on?

I received a solicitation letter from First National Bank Omaha today. The offer was 1.99% APR on balance transfers in the first three billing cycles, for life.

Almost immediately, I thought about doing some more arbitrage. Meaning, I envisioned getting a high credit limit on this card, getting that amount transferred to another card, withdrawing the credit balance, and then investing that money in my HSBC online savings account.

The spread would be *roughly* 3% (because HSBC's APY is 5.05%, and I'm too lazy and stupid to figure out what the APR is). Assuming I get a $30k credit limit and, for calculation's sake, transfer/withdraw all of that, I'd get:

$30,000 x .0505 = $1,515 in interest income for the year

However, with that $30k in the negative books, so to speak, I'd owe:

$30,000 x .0199 = $597 in interest expense

Of course, since I'd be making minimum payments to the credit card monthly, the total interest expense for a year would probably be less. Let's say it'd be about $550 (I may be way off).

That'd leave me with $1,015. Yet, that is before we factor in taxes. Let's use the 28% bracket and calculate from there:

$1,515 * .28 = ~$424

That means after deducting for interest and taxes, I'd have:

$1,515 - $550 - $424 = $541

Personally, that's not much of a return, and certainly not worth weakening my already weakened (from past arbitrage efforts) credit score. Long story short -- nice idea, but just not worth it. Now, if the credit limit was $100k, that'd be a different story. ;)

shady citibank practices

Cutting-to-the-chase-moral: Keep PDFs of your credit card applications!

I recently started to do an app-o-rama with credit cards, aka credit card arbitrage (aka get a bunch of cards with 0% apr, do a balance transfer and put the money into a savings account to earn interest). There are some good "deals" out there in terms of cards with balance transfer fees waived. One such deal I found was for Citi's PremierPass credit card.

The offer was 15k points after your first purchase, and up to 12 months to do a balance transfer. A BT would run you 3% of the amount transferred, maxed at $75. I just got my card in the mail today, and was surprised to find a few differences from the application I submitted. Notably, the two that caught my eye were:

• No annual fee (the promotion said that there was an annual fee, so this was actually good news)
• Balance transfer fee would be capped at $250, not $75

The last point just wasn't going to work for me in my arbitrage plans -- paying $250 to do a BT would require me to earn even more in interest just to cover that amount. I called customer service and was told that if I had "proof" of the terms I said I signed up for, then I'd need to mail or fax it in to get them applied to my account. It's very annoying that I have to do this at all -- almost feels like a bait and switch tactic to me.

I went back to the URL where I first signed up for the card, and lo and behold, the terms and conditions were different now. So the only way I could prove the offer I agreed to was to have a print-out of the original application. Who keeps a copy of their credit card application? Clearly, Citibank is banking on people just submitting an application, getting approved and being stuck on less than agreed-upon terms just because they didn't print out the actual application.

However, they banked wrong with me!

I have a PDF print-out of the credit card application, with the terms of the offer on it. With this "proof" in hand, I should be able to get Citibank to honor what they had offered in the first place. =)

You may be wondering why I'm so anal to have an actual PDF of the terms and conditions. It's a trick I picked up when I applied for all these airline/hotel rewards cards. A site I did some research on gave that valuable piece of advice. With a PDF print-out, you can ensure you receive the points/miles/dollars/rewards/etc. you were promised. You don't waste any paper with a PDF, and it takes minimal space on your hard drive. And for those situations when you need to prove to the bank what their original offer was, then having it is golden!

easy way to get starwood gold status

One of the best things about traveling for work is the ability to build up loyalty points to earn free travel. Airlines make it really tough to redeem miles, so I've been thinking about focusing my efforts on earning hotel points instead. Based on some research I've done, I decided Starwood's Preferred Guest program is by far the best.

With each stay, you earn two points per dollar spent. Once you have 3k points, you can redeem them for a free one night stay at some of their hotels. If you want miles though, you can always redeem 20k points and with the 5k bonus points Starwood gives you, you'll get 25k miles.

Anyway, the point of this post is to also share with you how I was able to get Gold status in the program. Normally, to get Gold, you need to either have 10 stays or 25 total nights. I have a bunch of travel scheduled already for this year, so I was going to break up my lengthier trips into separate hotel stays. It would've been really inconvenient, but I decided it'd be worth it for the 50% bonus points (regular Preferred guests get 2 points per dollar spent, whereas Gold members get 3 points).

However, I was checking out the Starwood forum on FlyerTalk.com, and learned that some people got Gold status just from calling and asking. So that's what I did. I called, told the customer service rep that I have the Starwood American Express card, and that I wanted to be upgraded to Gold. They did it, no problems.

So if you're an SPG member, definitely try that. You can earn points much faster!

FYI - I'm currently in Seattle for work, hence, the fewer than usual amount of posting.

penalty for being responsible

Just read this article about how some in the credit card industry think "deadbeats" should pay an annual fee. Now, the deadbeats they're referring to aren't those that don't pay -- they're talking about people who pay their balances in full each and every month. The credit card companies make very little money from those people (a group in which I belong), and according to some (some crazies I call them), its the delinquents and/or those who carry balances month to month who subsidize the deadbeats.

Obviously, I'm not in favor of any fee being put on me for being fiscally responsible. To lay blame on people who manage to spend what they can afford is ridiculous. If those people get their way though, I wonder what people would do. My initial reaction was, I'd just stop using credit cards. However, the reality will probably depend on the type of rewards I get for whatever card I choose to stay with. Still, I much prefer the current situation now.

adding to the 0% balance transfer discussion

Lately, there's been much talk about how profitable it can be to exploit credit cards with 0% balance transfer offers, including articles written at 2million, Consumerism Commentary and Blueprint for Financial Prosperity.

I used to do that back in the day, right after I graduated college. Actually, right after college, I transferred balances left and right to stay financially afloat, because of my silly, "Just because I can't afford it doesn't mean I should live a certain lifestyle" philosophy (ah, the ignorance of youth). But after I paid off my debt, I realized it was possible to transfer a "balance" from a new credit card that offers free transfers at 0% (for a limited time period) to another credit card that has no balance, withdraw that extra money, and put it into a savings account or (here we go again with the stupidity) invest the money in stocks.

Those days of tracking when I needed to pay back the new debts and/or find a new credit card to transfer a balance to are long over for me. The effort-reward ratio just didn't make it worth it for me personally.

However, I still strongly recommend transferring credit card balances -- if they're held on a card with a high APR. This article at SmartMoney.com has some good advice on finding not 0% cards but cards with low APRs to transfer to -- doing so will save you a ton of money in the long term, so the effort-reward ratio is certainly worth it.

cash back credit cards

Up until recently, I was a big proponent of cash back credit cards. You didn't get a whole lot back per purchase, but after a while, the 1%/5% breakdown would add up to a decent amount. In fact, I actually hit my $300 limit on my Citibank dividends card in 2006. But I’ve lately been using my rewards cards that give me miles on United and/or points with Starwood. This was somewhat due to the joy I experienced when booking my Asia flight on miles alone. I love free stuff, especially when it comes to travel. And it was also due to the fact that Citibank recently changed their cash back percentages so that it’s a lot harder to get the same amount back.

Since I stopped using my Citibank card, I have about $28 stuck in my cash back account. Unfortunately, since u can't ask for a cash back check unless your balance is $50 and up, I guess it’s just going to sit there for a while.