The thing about playing the credit card balance transfer “game” is that you have to pay by the credit card companies’ rules — and they can change these rules with very little notice.
On my most-used card, the Citi Dividend Platinum Select Card [aff], CitiBank lowered the cash back rebate to 2% last year, making it more difficult to take advantage of credit card arbitrage.
That wasn’t enough, apparently. It seems CitiBank wants to curb customer profit further. I received this notice in the mail a few days ago:
We are removing the maximum dollar amount on the Transaction Fee for Balance Transfers. This fee will be 3% of the amount of the balance transfer, but not less than $5. This fee is a FINANCE CHARGE.
A $10,000 balance transfer will earn $280 after a year in an HSBC Direct account (if they don’t change rates) assuming you pay off $833 for the next 11 months to pay off the entire balance, and assuming the balance transfer offer is at 0% interest. Of this $280, you’ll get to keep $211 if you’re in a 25% tax bracket. The fee to transfer this balance is $300, so you are actually losing money in this scenario.
The bottom line is that if you have to pay a 3% transfer fee, and you have to pay the balance off within 12 months, there is no scenario in which your interest earned after tax — if your tax rate is anywhere higher than about 5%, and it most likely it is — will exceed the fee. So if you’re going to take advantage of 0% balance transfer offers, find a card that does not have an unlimited transfer fee. Even better would be no fee at all.
The only other option is to find an liquid cash-like account earning guaranteed annual interest significantly more than 5.05%. Good luck.
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