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. ;)

speak up, get free hotel night (or the equivalent of)

This past Friday, I went up to Boston to meet a client for dinner and a show (he's a comedian and part of an improv group). I got up there in mid-afternoon, and after checking in, called down to the hotel's concierge to arrange for a cab.

When I went downstairs at the pre-arranged time to meet my cab, no one was there. I asked the concierge if the cab had been confirmed and while she said it was, it actually turned out not to have been the case. Long story short, no car ever showed up, I had to flag down a regular cab (who also tried to scam me, but that's a story for another blog), and I ended up leaving the hotel 45 minutes after I planned. Thankfully, the client was understanding and there were no ill effects on that relationship.

At the end of the night, when I returned to the hotel, I decided to speak to the manager to voice my displeasure. I recapped the story, and the manager was very sympathetic. So much so that she decided to give me enough points for a free night at their hotel (I'm a member of the Starwood Preferred Guest program). Needless to say, I was very happy.

The concierge showed poor customer service (after I asked her to re-confirm the cab reservation, she asked me to give her a minute and she took that time to help two other guests make dinner reservations, even though I was already very late). Her manager, however, showed tremendous commitment to service, and was able to turn an unhappy customer into one who's sharing the "win" on his blog. =)

My moral of the story: It pays to speak up. You may get a free night out of it.

hsbc direct new money promotion - worthwhile?

I received an email from HSBC yesterday, promoting their new 6% APY for "new money." The gist of the deal is that through April 30, you'll get a 6% APY (vs. the regular 5.05%) for all new money deposited into your online savings account. The higher rate is nice, but is it really worth it in all situations?

A friend of mine just IM'ed me about the promotion, and thought he'd be able to get $300/month from the promotion if he: 1) sold off his stock holdings, valued at $20k, and 2) deposited that amount into HSBC. His rationale was based on text from HSBC's email saying that you'd receive $150 for every $10k deposited. The text was actually misleading (or my friend misinterpreted that text). Basically, for every $10k, HSBC would be giving you $50/month via the new rate.

[Here's my math: $10k x 0.06 (the APY) / 12 (number of months in a year)]

So the total gain from depositing $10k would be $150. In my friend's situation, the gain would be $300.

Is that worthwhile? I may be wrong, but I don't think it is. First, if the stocks he has right now are poised for growth (and they're technology stocks so I believe they are), then by selling, he'd be jumping off the proverbial bandwagon before the proverbial parade starts. Second, by selling his shares, he'd have to pay capital gains tax, which eats into his net gain.

Don't get me wrong -- getting 6% yield without any risk is a good thing. However, it depends on what the opportunity cost is. I personally think this is a great offer if you've got a ton of cash you can move into HSBC, from another vehicle that clearly won't get you the same kind of return (such as a money market account, checking account with a pitiful APY or you're doing an app-o-rama).