| Banks giving away free money (almost) |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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| Banks giving away free money (almost) |
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Has anyone had credit card companies trying hard to offer you free money (0% interest) and taken them up on the offer just to gain from interest or investments?
One of my credit card companies called me (verified by caller ID) trying to give me $29k at 0% interest for 6 months for $75 balance transfer fee limit. At first I resisted, then I thought maybe I should take $3k to contribute to my Roth IRA now instead of later after covering a couple of bills. The kicker was he said it would cost me "no more" to borrow $20k than $3k ($75 total). Maybe I should have taken him up on the $25k or $29k, but dollar signs about unknown monthly payments started dancing in my head.
The $20k showed up deducted from my credit card 2/15, in my checking account available balance 2/16, I opened a regular brokerage account at Fidelity (already have IRA/Roth IRA), and the $17.5k check I deposited at a local office 2/17 has already shown up 2/18 as a balance at Fidelity and debited from my checking account.
How can banks make money doing that, if I can make a couple hundred dollars after taxes and balance transfer fee just parking it in a money market for 6 months? Or are they hoping I will be tempted to spend it and have to pay it back later (or if a day late) at over 21% interest?
PS: This would not be such a good deal if balance transfer fee was 3% or more with no limit ($600+ effectively over 6% APR for 6 months). But $75 limit of $20k is 0.375%, which is easily recovered multiple times in 6 months @ current money market rates. Or where else can you get 100% margin @ 0% interest. Worst case if I lost it all would be covering it with property State of WI wants to buy, which I was thinking of selling this year due to increased property taxes.
NOTE: I would NOT recommend doing this if you would be tempted to spend or lose it, unless you have liquid assets to cover it. If you have a balance you need to pay off, it may be better to get low fixed rate for unlimited time.
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Sat Feb 18, 2006 5:14 pm |
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coaster
Senior Advisor
Cash: $ 1358.20
Posts: 6687
Joined: 11 Oct 2005
Location: Wisconsin
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It'll work great so long as you have appreciation on the investments. But you're the one taking the risk, not the bank. And you're able to cover it even if you don't have the appreciation. I suppose that many people who do this don't understand that and aren't able to pay it back, and so the bank makes money on enough of these that they can afford to subsidize the few, like you, who they can't make any money on.
~Tim~
Eye Candy : Why Whimsy
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Sun Feb 19, 2006 1:52 am |
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