I currently have around A$40K of "0% balance transfer" funds borrowed on BankWest and HSBC credit cards. The money is invested at 6.1% and isn't due for repayment until the end of the year, which provides a nice little passive income stream after the initial paperwork and making arrangements for automatic payment of the monthly minimum via B-Pay. I'd previously done similar CC arbitrage using my Virgin Money and Coles credit cards. But it looks as if the era of "free money" may be coming to an end in Australia. There have been fewer of these 0% balance transfer offers appearing in recent months, and yesterday a new CC offer "to the householder" arrived in the mail from HSBC. Interestingly, although it advertised 0% APR on balance transfers for 6 months, there was a 2.5% "settlement fee" imposed, which hadn't applied to previous offers. The fine print also mentioned that this fee would be added to the account at the start of the 6 month period and would accrue interest at the normal rate (around 12% pa). This means that during the 6 month 0% period you would effectively have paid around 2.8% pa on this money, making the after-tax profit for investing the funds in an online high interest account negligible. Once you take into account the risk of additional fees if you miss a monthly payment for any reason, or don't pay off the remaining balance before the 0% period ends, it seems that CC arbitrage is no longer worth the effort - at least with this HSBC card offer. I'll keep an eye out for new CC offers to see if this is the start of a general trend by all the lenders, or just a foible of HSBC.

The monthly statement for one of the Credit Cards I used for 0% balance transfer arbitrage just arrived. I somehow managed to misjudge and overpaid the amount required to clear the balance just before the 0% period ended. The amount overpaid was one minimum monthly payment - so I now a $240 credit on a CC I never use. Ah well, I'll just have to use this card to pay a couple of grocery bills at the supermarket. This will teach me to double-check the final amount required to clear a CC at the end of a 0% balance transfer period.

A funny thing has been happening with the new Credit Cards that I obtained just to make use of the 0% balance transfer offers that were available. Many of the issuers are now sending offers to increase my credit limit! Apparently having a balance on the card and making the minimum payment each month makes me a model consumer, and the credit card companies are falling over themselves offering increased credit limits. I can only assume that either the system they use to decide who should be offered more credit only looks at the repayment history, and doesn't care about the interest rate being charged. Or perhaps they are just hopeful that once the 0% period expires I'll just keep making the minimum payment each month, rather than pay it off in a lump sum. Anyhow, there's not really any downside to accepting the increased credit limits from my point of view - we don't have a "credit score" as such in Australia, so I may as well have a large line of credit available in case of emergencies (it lets me keep all my funds invested according to my asset allocation, rather than keeping an "emergency fund" invested at call at somewhere).

For US readers taking out new cards and accepting higher credit limits may adversely affect your FICO score temporarily - but after a while it may still be a positive as an increased credit limit will mean that the amount of debt on your cards (for 0% balance transfers) would be a lower % of the total available credit.

Enough Wealth

Just as well I didn't believe the CMC Markets Rep on Friday when he said that if I transferred the initial $1000 into my new account that day, an "automated" email with my login details would arrive on Monday... we'll see if the account email arrives tomorrow. I won't make an intial CFD trade until next month, but I'd like to install and "play" with the trading software asap.

Meanwhile some dividends were deposited into my account today, $442 from SUN, $144.60 from ASX, and $326.25 from QAN.

And I finally got around to setting up the automated payments of the minimum monthly amounts due on the HSBC and BankWest Credit Card accounts that I've taken 0% balance transfers from. I set up the minimum amounts ($300 for BankWest on a $12,500 balance transfer, and $270 for HSBC on a $10,000 balance transfer) to happen a few days before the due date each month to allow for when the due date falls on a public holiday or weekend. I'll still double check each months statement to make sure the payment will happen before it's due - I've previously had experience of a CC company changing the monthly due date without notice!

Aside from this I'm making slow progress sorting 2,000 rows of portfolio transaction data from my old Quicken backup into a capital gains transaction log. I'm 75% done so I should be able to finish it off tonight and merge it with my CGT spreadsheet I'd already setup with transactions since 2000. Hopefully the calculated final stock holdings will mostly reconcile with my current CHESS and margin loan account statements, so I won't have to go fishing through filing cabinets to verify 20 year old broker statements.

If I get everything reconciled by the weekend I'll be in a position to evaluate a few pending decisions around stock buy-backs, selling stocks and realising capital gains so I can move the funds into a SMSF, and what end-of-financial year arrangements I'll need to make regarding tax deductible loan pre-payments etc. in order to manage my taxable income and hence Capital Gains tax rates for this year.

Enough Wealth

It turns out the $13,500 balance transfer to my day-to-day CC had come from my BankWest CC (I asked for the Balance Xfer when I accepted an increases credit limit for this card), not the new HSBC CC I'd applied for recently. It was just coincidence that the BankWest CC xfer happened at the same time the new HSBC CC arrived in the post. I rang HSBC to activate the new CC today and was told that the $10K balance xfer for this card had been processed on the 27/2 so there should now be an extra $10K credit balance sitting in my NAB day-to-day CC account. I'll withdraw that $10K on Monday and deposit the funds into my Credit Union account so it can be added to my online savings account earning 6.1%.

I'll have a total of $34,500 of 0% balance transfer funds invested at 6.1% once I do the deposit on Monday. $11,000 of this is from the Virgin CC where the 0% period ends on 10 April, so I'll be repaying this amount on 5th April (to make sure it gets processed before the Easter Holiday period).

The new 0% offers are only until August and September this year, so I'll have to keep an eye out for any new offers that arise in the meantime.

Enough Wealth

HSBC sent my new CC yesterday. When I checked my everyday CC account the $13,500 balance transfer had already gone through into the account on the 19th, so I withdrew $10K and deposited it into my Credit Union account where I can leave it in the high interest account until the 0% balance transfer period ends on 1 October. As part of the balance transfer was used up on the current months accumulated charges on my everyday CC, I'll deposit the remaining $3,500 into the Credit Union account next month instead of having to make a CC payment.

I should earn around $480 interest on the $13,500 "free" loan from HSBC by 1 October, and the only cost was a $10 cash withdrawal fee from my everyday CC account and about 10 minutes work all up to apply for the card and shift the $10K cash from one bank to another.

I'll just have to remember to cancel this HSBC CC once I've repaid the balance transfer amount in October, otherwise they'll start charging an annual card fee next year (this particular card only waived the annual fee for the first year).

I currently have a total of $18,000 on two CCs (Virgin Money and Coles/GE) as 0% balance transfers, which has been invested in an online account earning around 6% pa. Both these cards mature soon ($6K next week and $12K in March), so it was very timely that one of my other CC accounts (from Bankwest, which I originally opened in order to get a free $100 credit on the account, but don't normally use) sent me an offer to do a balance transfer of up to 95% of my credit limit at 0% for 6 months. I'll take out a $13,500 balance transfer on this card and invest the funds at 6% for the next 6 months, earning $405 for about ten minutes "work".

I still haven't sent in the other new CC app that arrived from HSBC a few weeks ago - I need to complete the application form and send it in tomorrow. I only requested a $10K balance transfer on the application as I don't know what credit limit they'll give me.

Assuming the new card is approved I'll have a total of $23.5K invested at 6% for the next 6 months and I'll have earned around $1,250 interest on OPM in 12 months. Even after paying tax at my marginal rate it will have been worth the small amount of time and trouble involved in getting the cards, applying for the balance transfers, setting up automatic payments of the card minimum payments each month, and shifting funds around at the start and end of the balance transfer period. As I keep the balance transfer amounts invested in an online bank account available at call there's no significant risk involved.

A lot of posts on the Personal Finance blogs have outlined the hows, whys and wherefores of doing a 0% balance transfer Arbitrage to earn interest on OPM. Lots of other blogs deal with those struggling to pay off CC debt, and who could benefit from transferring their current balance to a lower rate CC. But how do you find the best CC available?

I've just had a look at a site which lets you compare the various features of Credit Cards - it even has a page listing cards that have a 0% balance transfer available! All in all this looks like a very useful site for my US readers.

PayPerPost

The second new credit card account finally processed my 0% balance transfer request. Because Virgin Money decided to give me a $22,000 credit limit, I decided to do a balance transfer of $12,000 (rather than the $6,000 I had originally expected to be able to do). I didn't use the full $22,000 available as this will be the first time I've do a "cash withdrawal" from the destination CC account of the balance transfer. Theoretically (according the bank's call centre) I won't pay any interest on this "cash advance" as my account is in credit by more than the amount being "advanced". But I'll only believe this when I get my next CC statement from them confirming that no interest is due!

The current status of my balance transfers experiment:

Card #1 Coles Source MasterCard:

I transferred $6,000 at 0% for 6 months onto my day-to-day CC. I'll use this extra credit balance to cover my normal $2,000 per month living expenses for the next three months. This will allow me to save $2,000 each month into an online savings account earning 5.90% interest. $6,000 x 5.90% x 4 months = $118

Card #2 Virgin Money MasterCard:

I transferred $12,000 at 0% for 6 months onto my day-to-day CC. I then took a "cash advance" of $12,000 to remove the surplus credit balance created on this CC by the balance transfer. It may cost a $3 cash advance fee to withdraw the funds (this charge hasn't appeared in my online CC statement yet, so I'll see if it gets added in this months statement). I've deposited the cash into an online savings account with my Credit Union that will earn 5.90%pa for 5 months. This will earn me $295 in interest. BTW I was a very strange feeling walking out of the bank with $12,000 CASH in my wallet! Luckily I only had to go to another bank next door to make the deposit into my Credit Union account.

Total interest income from the 0% balance-transfer offers;
$118 (card #1) + $295 (card #2) - $3 fees = $410

Not bad for less than 2 hours filling in forms and switching funds between accounts.

ps. The online banking for Virgin is provided by Westpac - they have the cutest "virtual keyboard" for entering you login information:

My $6000 0% for 6 months transfer offer for my new Coles Source MasterCard arrived safely onto my NAB VISA account - it appeared as a Credit on my NAB account the day after the amount was charged to my Coles Source MC. It was a bit of a shock to see a four thousand dollar credit balance on my VISA account - I usually run up about $1500-$2000 on the card each month and pay it off in full (so no interest charges), so the $6000 transfer means that I can afford to pay an extra $2000 each month off my Citibank RediCredit balance for the next three months. The Citi line of credit account was used to make some tax deductible investments in June (so I get the tax deduction up front), but even though the interest is tax deductible, at 11% it's worth using the free money from the balance transfer for six months. Unfortunately having to do it via a credit to my VISA account means that it will take three months for the entire $6000 to come off my RediCredit balance - so for the six months period I'll save interest on $2000, $4000, $6000x4 - so the average is $5000 reduction in the balance being charged 11% - so I'll save $275 in interest payments. Even after allowing for getting 40% back as a tax refund this means the zero balance transfer offer is worth $165 - for about 1 hour spent filling in forms etc.

I have to make absolutely certain that I pay off my Coles Card balance in Feb (the offer period ends 22/2) otherwise they'll start charging the cash advance rate on the balace transfer amount. I also can't charge anything to the Coles card while the balance transfer hasn't been paid off, otherwise it will be charged interest (any payments come off the balance transfer amount first). But this isn't a problem as I normally charge everything to my NAB VISA card to earn FlyBuys points.

I've now also applied for a Virgin Money Card which has a similar 6 months interest free balance transfer offer. They've approved the application, but I just did the 100 pts identification paperwork at the post office yesterday and mailed copies of some rental and dividend income statements (I had to photocopy 30 pages of dividend statements!). I won't know the credit limit until they process this, but I asked for a $6000 balance transfer to my NAB VISA account - we'll see if this goes through, and when.

As the cash flow benefits of this balance transfer wouldn't kick in for 3 months I'll have to check with NAB how a cash advance on the VISA card would be treated when I have a Credit balance on the account. If I can withdraw the $6000 immediately to pay off my Citibank account, so much the better.

All this balance transfer action is only worthwhile if you can use the amount to save interest on some existing credit balance - but most people would have a home loan, margin loan or similar to apply it to (even if it has to go indirectly, as I've done, by diverting normal monthly credit card payments into the desired loan account). You also have to be able to pull the money back out at the end of the period so you can pay the balance transfer off before it starts costing you interest.

It also wouldn't be a good idea if you needed the credit elsewhere - for example when applying for a home or investment property loan they ask for all your credit card limits - they treat them as existing debt even if you have no current balance, as you could utilise the credit at any time. I don't have to worry as I'm already fully geared in real estate, and have established all the margin lending credit limits that I need.

My first attempt to do a 0% balance transfer from my new Coles Source card was a flop - apparently a Citibank Redicredit account is not acceptable.

I'm a bit unhappy that the customer service dept. had sent out a letter on the 11th confirming that my transfer request had been processed, but then ever informed me that it had been reversed. (I only found out when I checked my account online this morning).

Anyhow, I tried again this morning - this time with a transfer to my NAB VISA credit card, which I use for paying all my rates, bills etc. (I get lots of Fly Buys. points that way, without any extra spending). As I put through around $2000 per month on this card and pay off the balance in full each month, a $6,000 transfer from the Source card will mean I can pay $2000 extra off my Citibank LOC account for the next three months. I used the LOC to fund some end of tax year deductible investments, so the interest is tax deductible, but it's still worth reducing the outstanding balance by using the 0% transfer money.

When the 0% offer period ends in Feb '07 I'll just pay it off with some spare funds I have sitting in an HSBC Serious Saver account.

We'll see if the balance transfer works properly this time...

If it does, Virgin Money is currently offering a 0% balance transfer for new customers, so I may have a go at that one next. As I've already got all my Margin Loan limits and home loans established, it doesn't matter if I have a few extra credit applications on file.