Thursday 20 March 2008

I applied for another 0% balance transfer offer

Aussie Home Loans is offering a 0% interest rate for six months on balance transfers for new Mastercard applications (the card is issued by ANZ Bank). I applied online for a card today, and should get a decision within seven days. I applied for an $8,000 balance transfer "from" my existing NAB Visa account even though the current month's balance is only $4,000 and I'll be paying it in full as usual. I'll soon be getting charged about $8,000 for last week's online booking of the airfares for our European Vacation. I have the money for our holiday expenses already saved up in my ING online savings account, so I'll be able to pay off the credit charge in full the month that it appears on my statement, but if I get the 0% balance transfer I'll be able to leave the $8,000 in my online savings account earning 8.1%pa for another six months. That would be another $324 in interest income for about five minutes "work".

Copyright Enough Wealth 2007


Anonymous said...

Hmm. I'm a little confused with the whole balance transfer issue. If my understanding is correct, you transfer the balance (not the total limit) on your existing credit card to your new credit card and they won't charge you any interest on it.
So, how do you effectively perform a credit card arbitrage other than saving the interest you would otherwise pay on your existing card? Moreover, only how much you have spent on your card which gets transferred?
Maybe I have just misunderstood... said...

In theory you transfer an existing balance from your existing CC to the new CC and just save paying interest on that balance. But balance transfers don't actually work that way.

In practice the existing CC doesn't have to have any outstanding balance. In reality you aren't transferring the outstanding debt to the new card, you are simply transferring a PAYMENT from the new CC account to the old CC account. If you don't have an existing balance on the old CC you can still do a balance transfer, you just end up with a credit balance on the old CC account rather than paying off an existing debt. You can then do a cash withdrawal from the old CC and invest the money in an online savings account to earn so extra income (I've done that before).

This time I'll actually have an $8,000 charge on my old CC (as soon as my airfare purchase goes through), so I'll be saving paying off that purchase with the 0% balance transfer, rather than having extra money to invest. So in this case I'll just be saving interest on the charge, rather than earn interest on the balance transfer funds.