Its All About the Details

In Part II of this article, we looked at some of the things that people to need to watch out for in implementing this balance transfer arbitrage strategy. It wasn't the complete list, but it was enough to make it crystal clear that careful attention has to be paid to the details - the fine print - in order to profit from balance transfers. As I mentioned in Part I, the details are in the terms & conditions of the offer. Today, we're going to examine the terms & conditions from an actual balance transfer offer I received in the mail to determine if it is good enough to make some free money with if we accept the issuer's credit card. I recently received an offer from American Express for its Blue Cash card, so we are going to take a look at the terms & conditions for Blue Cash.

Here's What We're Looking For

Here are 4 things to know when screening balance transfer offers for this arbitrage strategy:

(1) The APR for the balance transfer;
(2) The transaction fee to transfer the balance and the caps;
(3) The annual fees; and
(4) The length of time for the promotional interest rate.

In reviewing at the terms & conditions for the American Express Blue Cash card, I noticed the following:

(a) There's a 4.99% APR for the life of the balance on balance transfer requests submitted with the credit card application - any subsequent balance transfers will be subject to the substantially higher, standard purchase APR;
(b) There's no balance transfer fee with the offer, but subsequent balance transfers may be subject to an unknown balance transfer fee;
(c) No annual fee; and
(d) The 4.99% APR is good for only 6 months.

A few other details: American Express has its own bank and by accepting their offer to transfer credit card balances to that bank, you authorize it to forward the balance transfer check to the credit card company the balance is being transferred from. The card also offers up to 5% cash back on purchases and has a 0% APR on purchases for the first 6 months of membership, but after that the purchase APR rises significantly. Depending upon your credit history the purchase APR, which is a variable one, could range from 13.24%, 15.24% or 18.24%.

The Verdict is In

If you've read Parts I & II of this article, you know that the objective of the balance transfer arbitrage strategy is to make a profit on the spread between what it costs you to borrow the money and the net interest you pocket on the borrowed money after you pay off the card balance. The greater the spread, the greater the opportunity to make a profit and the narrower the spread, the smaller the opportunity to make a profit. Based upon its terms & conditions, the American Express Blue Cash card offer is an extremely poor candidate for the arbitrage game. For starters, the balance transfer APR of 4.99% makes our cost of funds too high to overcome. 0% APR is best. Second, the 6 month time frame is too short. Look for a 12 to 15 month time frame. Lastly, by accepting the offer, a cardholder authorizes American Express' bank to issue and forward the balance transfer check to his or her old credit card issuer. This completely knocks out any chance of making money with this strategy! The offer must permit a cardholder to write a check to himself/herself, and must be able to do so without the check being treated as a cash advance. Oh well, its time to google "balance transfer offers" because, I really don't want to sort through stacks of junk mail again.