Balance transfer arbitrage was made popular back in the days of higher interest rates, but that doesn’t mean the opportunity no longer exists. Credit card balance transfer arbitrage is a system in which people use balance transfers to borrow money inexpensively to deposit in other accounts at a higher rate.
In general, balance transfer arbitrage works best when combined with another special offer. Smart credit card users often use 0% interest offers with no fee to fund other accounts like an online checking account or other high-interest account. Some online banks give new customers rates 2-4% higher than the normal market rate. Thus, you could borrow $10,000 on a balance transfer at 0% to deposit at 4% per year, earning you $400 for virtually no work for you. All you have to do is make your payments on time, and always pay off the balance transfer offers before the interest rate resets at the end of the promotional period.
Do not attempt balance transfer arbitrage if you will need to rely on your credit score in the immediate future. Arbitraging requires that you carry a large balance on your credit card, which will negatively affect your score until the balance is paid off. This is of little concern for people who will not need a good credit score in the immediate future. Note that your credit score will recover immediately after you repay the balance, so if you need to apply for a car or mortgage loan, simply pay off the balance transfer with your savings or investments. Your credit score should go back up to “normal” within the next 30 days.
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