Search Results for: High Interest Savings

Back in my post Why You Shouldn?t Settle For a 1% Cashback Credit Card, commenter TW raised a good question:

Isn?t the best ?return? on credit card use found using a 0% on purchases card and put the money you would use to pay it off in an interest account (5.5% E-Loan account, etc.) instead of trying to use the best rewards bonus card where you?d need to pay off the monthly balance to avoid fees?

On one side, we have the interest earned off of “borrowing” at 0%. On the other side, you have plain cashback rebates. Which is better? This is a question I asked myself a couple of years ago, but due to the low interest rates back then it definitely wasn’t worth it. Now that ELoan Savings is offering 5.5% APY and other banks are close to that, I think I need to run the numbers again.

Calculations For Using 0% APR Purchases Card
First of all, you’ll need to find a new credit card with an introductory rate of 0% APR on purchases. To get an average picture, let’s say you spend an even $1,000 every month on it, or $12,000 annually (although this example would work for any dollar amount). Instead of paying the balance in full at the end of the month, you put it into an interest-bearing account. Let’s use 5.50% APY, although rates may rise (or fall) in the coming year.

Instead of nitpicking with grace periods and minimum payments, let’s say the bank interest earned is the same as taking the average, $6,000, for 12 months at 5.50% APY. This will give you a rough estimate of ~$330 in interest at the end of the year. Now, you have to pay taxes. Let’s use a 25% marginal rate.

$330 x 75% = $247.50

$247.50 earned on $12,000 of spending is 2.06% cash back.

Ok, 2%, not bad. If you spend more early on you’ll do better, if you spend more late in the year you’ll do worse.

This is the part I forgot initially – If you can get a card that gives you 0% APR on purchases and cashback, that rebate percentage can be stacked on top. Remember, cashback rebates are not taxable. So let’s say you get a card with 1% flat back on purchases, that would give you something in the neighborhood of 3% cash back.

Some other things that came to mind:

1. You need a high enough credit limit fully take advantage of your spending. If you spend $500 a month you’ll need a $6,000 limit, otherwise you’ll need another card.
2. Some people just don’t have the discipline to put away that money into a savings account every month. Don’t do this if this means you!
3. You’ll need to get a new 0% card every 12 months to keep this up. Given the fast-changing nature of credit card rewards programs anyways these days, I personally don’t really care.

Conclusion
Look like TW was right. Although you get 5%/6% back on certain cards in specific categories, if you are only using one card, you really can’t beat 3% back on all purchases. Finally, if you find a card with some introductory bonus cashback offers you can do even better.

Here are some cards that would work well with this idea:
Chase PerfectCard MasterCard – No annual fee, 0% APR on purchases for 12 months, 6% cashback on gas for first 90 days, 3% on gas after that, and 1% back on everything else. Rebates credit monthly directly to statement.

Discover Open Road Card – No annual fee, 0% APR on purchases for 12 months, 2% back on gas.

Chase Home Improvement Visa – No annual fee, 0% APR on purchases for 12 months, 3% back on home improvement purchases, 1% back on everything else. Free laser level with first purchase.

I am leaving out cards that have no-fee balance transfer offers, as it would be more profitable to max those out for the full 12 months via balance transfers.

Here is the 3rd half of questions submitted to me. Yes, 3rd half. I thought I could finish last time, but some of the comments had 6 questions within one comment 😉 Not a problem, just took another post. This should just about finish my series on How To Make Money From 0% APR Balance Transfers (index of all posts).

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Ok, I’ve been thinking of ways to handle all the questions on this topic I still haven’t answered in my 4-Part series on How To Make Money From 0% APR Balance Transfers. I decided simply to answer them all, Cramer-Lightning-Round-style. Questions may have been edited for length, spelling, and clarity. Remember, the answers are from me – one imperfect man with an opinion.

Here’s the first half:
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[This is Part 4 of an ongoing series about how to make money from 0% APR balance transfers.]

So now you have the money and are ready to earn some interest. How do I set this up so I don’t spent all day on it?

Overall, It’s Easy
Seriously, when people say it’s too much trouble to keep track of, I just don’t understand. It’s a credit card bill. I’m sure most people already get 5 bills a month. You get a bill, you pay the bill. What’s so hard about that? The only thing slightly taxing is to remember to pay it off completely by the end of the 0% period.

Put another way, the risk here is in your control, unlike stock market risk or even real estate. If you make your payments, your profit is virtually guaranteed.

Now, there are three main objectives here – pay the minimum payment on time, keep earning max interest, and then pay off the entire balance before the 0% period expires.

Minimum Payment Setup
There are two basic ways to pay your credit card bills, either “push” them the money via check or online BillPay, or have the credit card compnay “pull” the money out of your bank account:

Manual Push
This is what I do. It’s a bit old-fashioned, but it just makes sense to me. The 0% balance transfer is just another bill I have. I get the paper (or online) bill, put it my ToDo box, and then within a few days I pay it online with my bank’s online billpay. I can schedule the payment ahead of time, and the bank tells me when the payment will arrive. This way, I keep earning interest on my money as long as possible. You may want to test out your online billpay system if you don’t trust it just yet. You could do this with checks too, but why waste the stamp these days?

Automatic Push
Since your first minimum payment will be the largest minimum payment (unless they change it on you), you can just try to send the same amount every month at the same time. Bill due dates are usually about the same time of each month. For example, let’s say my MBNA card is due from the 25-27th of each month and the first payment was $245. Due to weekends and stuff, I could schedule a repeating monthly payment of $250 every month on the 20th.

This way, it’s all done for you. Every month your job is to just to glance at the bill and make sure the minimum payment is not bigger than your previous payment, which would indicate they changed the minimum payment rules (uncommon, but possible).

Note that both of these is assuming you use a checking account with billpay. If you can absorb the minimum payments using your usual checking account, great. Nowadays Citibank and Washington Mutual also have savings accounts earning 5% APY right now. I just move money into my checking account twice a month from savings to cover bills.

Manual Pull
This method has the benefit of being able to use high-yield savings accounts. You must make sure that they accept such external requests (Emigrant Direct no longer does.) If this is the first time doing this, I try to pay very early the first month and ensure that it posts correctly.

I’ve done this with HSBC Direct, WaMu, and others. You just have to give your credit card company your bank’s routing number and account number. Then each month, after getting the bill, you log in, and have them take out the minimum payment. You can also specify the posting date – again, waiting until the due date gives you more time earning bank interest.

This method allows you to just move all the money into a high-yield account and have it sit there the whole time. You just pay the credit card company back a bit of their own money each month, and watch interest accumulate.

Automatic Pull
I thought more credit card companies did this, but I just did a quick look and didn’t find any. The idea is for you to authorize the credit card company to pull out a set amount (the minimum payment for example), every month from your savings account. No fuss, no muss. I dislike the lack of control here, but others may not mind.

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Payment Reminders

There are several ways to remember to pay your bill:

1) Most credit card companies also offer free email alerts to remind you to pay your bill. For example, I think I have one set to remind me 5 days before the due date.

2) If you use Outlook or a PDA, just stick in recurring monthly reminder on there. Use Snooze as needed, but not too often 🙂

3) I used to use Yahoo Calendar, but now my favorite is Google Calendar. Both allow you to set up both e-mail and SMS text message reminders to your cell phone, which I like.

Pin down the period end and set multiple reminders
You want to make sure of the end date of your 0% APR. Check the fine print. Call your card issuer and confirm. It should coincide with your statement cycle end date. If the CSR doesn’t sound confident, call and speak to another one.

Examples: The Discover Miles Card says “0% until the last day of the billing period ending during April 2008”. So if your billing period ends on every 23-25th, then be sure to pay it off by April 23rd, 2008. Give yourself a buffer, maybe have it paid off by the 17th.

The Citi Home Rebate Platinum Select MasterCard says “0.00% for 12 months from date of first balance transfer.” Check your statement to find out the actual date for the balance transfer.

Set multiple reminders! I usually make a little list of deadlines, which I check against each month whenever I get a bill.

Ok, I think that’s the bulk of the walkthrough. If you’re ready, use one of the cards I mentioned or see this list of the best cards with no-fee 0% balance transfers.

If you still have some concerns, I made a list from your questions and gave my answers. See Part 1, Part 2, and Part 3. Please read through it, I think 95% of questions should be answered by the end. If not, leave a comment. Thanks!

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Skip To Another Part
I. Introduction and Warnings About 0% Balance Transfer Offers
II. Scouting For 0% Balance Transfer Offers
III. Application Tips and Getting Cash From 0% Balance Transfers
IV. Setup And Management of 0% APR Balance Transfers
V. Best Pre-Screened No Fee 0% APR Balance Transfer Offers