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Recordkeeping for Credit Card Arbitrage

When you're doing credit card arbitrage, it's important to keep a calendar. As the end of your introductory rate approaches, you need to transfer the balance to a new low-rate card. If you don't have a detailed calendar, you risk paying hefty interest. Here's my calendar:

  • 05/31/2006 end of 1.9% balance transfer rate at Discover (card #1)
  • 06/30/2006 certificate of deposit matures (#1)
  • 07/20/2006 end of 4.75% APY at E*Trade Bank
  • 09/01/2006 end of 0% balance transfer rate at Citi (card #1)
  • 10/11/2006 end of 0% purchase rate at Citi (card #1)
  • 10/12/2006 certificate of deposit matures (#2)
  • 10/23/2006 end of 0% balance transfer rate at American Express
  • 10/23/2006 end of 0% purchase rate at American Express
  • 02/23/2007 end of 0% balance transfer rate at Discover (card #2)
  • 04/01/2007 end of 0% balance transfer rate at Citi (card #2, just applied)

Note the first and last dates. The end of my promotional period on my first Discover card is ending soon, so I just applied for a new Citi card (a Citi PremierPass) in response to a mailed solicitation. I applied online, but I'll have to wait for the response by mail, so I don't know how large my balance transfer limit will be. I'm hoping it will be large enough to cover the balance on my Discover card, but if it's not, I'll have to pay off the remainder because there probably won't be enough time to apply for another card.

Rising interest rates and a lower credit score have considerably thinned the field of good balance transfer offers. The best kind of card is one that offers 0% on balance transfers, no balance transfer fees, and 0% on purchases. My first Citi card and my American Express card both fell into that category. But I haven't gotten any offers like that recently. The card I just applied for offers 0% on balance transfers and no balance transfer fees, but it does not offer 0% on purchases, so I won't be able to use the card for anything but arbitrage. I've thrown away many solicitations offering 0% balance transfers but that would charge a balance transfer fee.

Regarding the other half of credit card arbitrage — earning interest on the money you've borrowed — ING Direct's 4.75% APY savings account offer ended in mid-April. At that time I moved my money back to E*Trade Bank which had just started offering a 3-month promotional 4.75% APY money market account. (I'm not sure whether this promotional offer is still valid. When I click through one of their ads, they're only offering 3.85%.)

Last year I had opened some certificates of deposit because they were offering better interest rates than I could find in more liquid accounts. That was a mistake, because interest rates rose rapidly and they're now earning slightly less than my money market account. I'm not going to open any new CDs until it's clear that the fed is finished raising interest rates.

I believe that competition among banks will keep the interest rates they're offering near the fed funds rate, at least for promotional periods. I'm comfortable predicting that I'll be able to earn 4.75% or better for the rest of the year. If I'm able to maintain my current balances of about $45,000 I'll earn over $2,000 this year — about $175/month. In other terms, credit card arbitrage is paying my electricity, natural gas, water, and garbage collection bills. (Accounting for taxes too, it still pays for my electricity and natural gas.)

It's easy money. But do keep good records.

Tiny Island