Credit Card Arbitrage


I saw an advertisement for the MBNA Platinum Plus® MasterCard the other day. The ad proudly proclaimed that their card offered a 0% interest rate. Naturally, I assumed there was a limit to this generosity. There’s always a catch. “Perhaps the 0% will end after six months,” I thought, “Or maybe there’s a huge annual fee.”

(Before we get too far into this article, please keep in mind that the best credit card deal in Canada is also issued by MBNA, but this is not the same card that I’m talking about today).

MBNA Platinum Plus®

My head swam with possibilities. No, I didn’t want to transfer a balance to this card. (I eschew debt, remember?)

I was excited by potential profit. I wanted– and, for a brief moment I thought I’d finally get the chance – to engage in “credit card arbitrage”.

What is credit card arbitrage? It’s where you take a “low interest” credit card offer, invest the money (at a higher rate of return than the interest rate charged by the credit card) and enjoy the profits. I wanted to take this 0% credit card money and stick it in my 2% Ally bank account to earn interest.

“Arbitrage” is a financial term. It refers to taking advantage of a disparity between two markets. Essentially, you capitalize on a difference in the price of a good (in this case, the “cost” of cash, which is the interest rate) between two markets (in this case, the credit card market for cash and the Ally bank market for cash).

Needless to say, I was pumped. On a $50,000 credit limit, I’d make $1000 in a year for doing next-to-nothing. A credit limit of 50 large might seem like an insane limit – it is. It might also seem unbelievable, but I have another MBNA card on which I was given a ridiculous limit that I refused.

After paying my taxes on my $1000, I’d still be left with a handsome profit of $700 (well, maybe more like $650) – again, all on a riskless arbitrage operation (if the cost of money is 0%, then fluctuations in interest rates at Ally Bank could never create a loss and, in the event of financial calamity, Ally is insured by the Canadian Deposit Insurance Corporation or CDIC, which is Canada’s version of the FDIC).

I clicked on the “Live Chat” feature to get the straight dope. Here’s the transcript:

Welcome to a live chat session. Please hold while we connect you to the next available Application Specialist. Your chat may be monitored and recorded for quality purposes. You are number 1 in a queue of 1. Thank you for your patience.

You are now being connected with Patterson, an Online Application Specialist.

you: How long would I get the 0% financing for?

Patterson: Hello, I am here to assist you today with your on-line application. May I have your name please?

you: Joe

Patterson: Hi Joe.

you: Hi Patterson.

Patterson: May I know are you referring to MBNA Platinum Plus® credit card?

you: Yes.

Patterson: The promotional interest rate of 0% for the 10 months starts from the date your account is opened.

you: OK. Are there any fees? and how to I get the money from the account?

Patterson: There will be a Transaction fee it is 1% of the amount or the $7.50 whichever is greater and it is just a onetime fee.

Patterson: You can obtain a cash advance from your account by using your credit card at an ATM, bank, or other location.

you: Oh, I thought it was 0%?

Patterson: May I know are you completing the application for the Platinum Plus credit card?

you: Well I was going to, until I found out that it’s not 0%

Patterson: Even this card does not come with annual fee on it, I wish you would like this card once you receive this card upon approval.

Patterson: You can transfer you balance form one card to another card.

you: well I wanted to take a card, withdraw the maximum amount of my credit limit at 0%, put it in Ally Bank to earn 2%, then pay it all back in the final interest-free month

you: Arbitrage; make some money on my good name/credit

Patterson: Well, you can apply for the card, as the credit limit will be decided by the bank, however it can go anywhere upto $100,000 upon approval.

you: Yeah but then I’d have to pay $1000. That’s not 0% money, that’s 1% money. Can’t mbna do math?

you: When I earn 2% on the money, my marginal tax rate is approx 30%, so I’ll only get 1.33333% interest [after this convo, I remembered that I could write off the interest, since it was incurred on a loan for an investment; but even still the 'deal' isn't very attractive]

you: and I only get to use the money for 9 months, so I’ll earn LESS than 1%. Then mbna will charge me 1%! That’s stupid!

Patterson: Its a normal Transaction fee for which will be charged if you make a balance transfer, Wire transfer, Access cheque or deposit and Cash advance once you receive the card upon approval.

you: so to access the 0% cash, I MUST pay 1%

Patterson: And it is just a one time fee.

Patterson: So do you wish to apply for the Platinum Plus credit card?

you: Yes, I wish to take advantage of 0% money. Unfortunately mbna is lying in its ad, because it is 1% money. Actually, it’s more per annum because the fee only covers 9 months, so it costs like 1.33333% annually. After 9 mos it’ll skyrocket to who knows what so the real APR is probably crazy

Patterson: Shall I provide you the link to apply for the Platinum Plus credit card or else you have it opened with you?

That was my first adventure into credit card arbitrage. I struck out.

I’ll keep an eye out, but it seems fairly hopeless. Has anybody else seen any real opportunities to profitably arbitrage credit cards?

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18 Comments… Share your views

  1. I think 1% for 10 months is a pretty good deal. But watch out for your credit score.
    You should not use more than 80% of your limit.

    • Yes, credit score is a concern if you’re looking to acquire more debt in the near future. For me, I have no need of credit (and also know that my score is well over 750), so it’s not a major consideration for my arbitrage scheme.

  2. It’s always too good to be true, but at least you took the time to get to the bottom of it–without jumping the gun.

    Still, I think we all knew (deep down inside) that this would too good to be true.

  3. I actually did this with an MBNA card last year (realizing the 1% up-front charge). I had been planning to make extra $1000/mth mortgage payments for the year when this offer serendipitously showed up in my mail. So instead of my $1000/mth mortgage payments, I borrowed $12k from this thing, paid down one big chunk (at 4%, guaranteeing I profit – or rather pay less, I guess), then put the $1000/mth into an Ally bank account at 2% waiting to pay off the card in a year. Given my rates (4% on mortgage and 1% to borrow off the MBNA card), there was no risk for me of no profit – although it did put me at a greater cash-flow/liquidity risk, had a lost a job or something. Thankfully that didn’t happen and I am a few hundred $$ richer today.

    I thought the offer was pretty much over, though – I may have to go check again and see if any future magic may be possible!

    • Brilliant!! I may have to ask your permission to write a blog post about this sometime. I think the lynch pin is to only take what you know you’ll be able to pay. In your case, you obviously weren’t stretching yourself too thin to pay $1000 a month. By saving interest on your mortgage, you’re not just “earning” interest like you would with the scheme that I attempted – you’re saving AFTER-tax dollars. And then you’re also collecting some interest (albeit taxable because your loan wasn’t invested) on the side. Very good work, sir.

  4. 2% at Ally or 3% at People’s Trust is still greater than 1% or 1.333%, so that’s why I’ve been doing this exact thing for years now.

    Not to mention you can further inflate the return a little by

    a) Getting $60 cashback by applying for the 0% MBNA card via Great Canadian Rebates


    b) Have the 0% offer extend to 15% months by applying via a code in this thread:

    Sure, with the 1% balance transfer fee, it’s not as good anymore, but MBNA is not really doing anything different than anyone else. There’s a balance transfer fee for any credit card in Canada. The only differences remain the fee, the promo rate, and the promo rate term. MBNA remains the best in all aspects.

    It’s still free money with little effort.

    • I personally already have my TFSA maxed out so the 3% incentive rates from banks like PT and Canadian Western Direct are moot for me.

      You’re right that 2% is better than 1%, 1.333% or what-have-you.

      Problem for me: the 1% money is only free for 10 months. So if I were able to have the money sitting in my Ally for 9 full months earning interest, then the interest earned is only 1.5%. OK, so long as the CRA doesn’t challenge me and I successfully write off the fee paid (despite the fact there’s a possibility that I’d get rooked on it because I’m sure MBNA would argue it’s a ‘service charge’ ), that means the spread is still only 0.5%. What happens if the BoC decides to keep the housing bubble inflated and cuts rates again? My 1% return is a sunk cost. I owe it, starting on day 1. My potential earnings, over the 9 months, are subject to some interest rate risk. If the spread was a full 2% (if I got the money for 1 year, and it was truly 0% money) then I could, in my head, justify the time, effort, and risk involved. The 0.5% spread just isn’t enough for me.

      That said – you’ve brought a very very awesome variable into the equation that, to me, was previously unknown. Unsurprisingly, I’m ignorant of a lot of things. The 15 month time frame makes the money a lot cheaper per annum and drastically increases my earning potential. Thanks for bringing this to my attention Gammj!! I’m extremely busy today but I’ll definitely look into that at some point; it may make for a more successful attempt #2!

    • By 1% tranafer fee for 15 months give you a effective rate of 0.84%. If you have more than 1 MBNA card, you can even transfer credit to this new card and increase the amount you can borrow.

  5. This Patterson guy seems less than helpful. Is this the card you want? Are you applying for it now? Do you want to apply for it? Can I give you the link to apply for it? Holy pressure much.

    Question. If it is a one time fee and you take out $750 the first time it would cost you $7.50 to do it (whether via percentage or minimum) so wouldn’t it be 0% to take out the rest of the credit? Saying you got the 100K credit limit (it frightens me to even attempt comprehending that) couldn’t you get around the 1K fee by taking out $750 then in a second transaction the remaining $99,250? Thus it only costing you $7.50 for the 100K credit loan? Or am I completely off and it costs you 1% fee to do any transaction? Patterson did say one time fee.

    • Re: your first question: probably not. If I end up doing arbitrage I will let you know how I go about it so that others can (at their own risk) attempt to emulate my adventure.

      Re second overall question: based on what the sales rep said, yes (“And it is just a one time fee”) Even without looking at the written terms, however, I’m confident they’d charge me 1% on the principal for any cheques that I wrote. Why? He either wasn’t very knowledgeable about the product or couldn’t effectively convey his knowledge because of a language barrier. Possibly both.

  6. Yea, I OFTEN turn to red flag deals… they are THE place on the web for credit card arbitrage, current deposit rates, loan interest rates… and consumer discounts. I really enjoy reading the forums there… I’m careful with money but some of this site is interesting!

  7. Nice reading on your article.
    It is difficult to do credit card arbitrage now since treasury yield is so low.
    Even though you find 0% APR, you still have to check balance transfer fee %, usually 3-4%. Saving Yield around 1%. Not like 2007-2008, Saving Yield around 5%+. You can earn 1-2% off the credit card.

    • You’re correct that the thin interest spreads make it tougher. The card in question had a transfer fee of 1% (x1.3333 bc it was interest-free for only 9 months), thus making it difficult, but not impossible, to make any funds.

  8. This sounds good. But how do you get the funds transacted on the credit card without it being a cash withdrawal and subject to penalty? i.e you need to “buy something of $X” on the credit card?

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