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Using 0% interest credit cards to fund your CD or saving account? It isn't worse the trouble

Tue May 8, 2007 02:05PM | By Tony

See more in Personal Finance | Permalink | Email | Comments (1)

Q: A friend recently told me about getting cash advance from his 12-months 0% interest credit card, and putting them into the 12 month CD which pays 6.5 percent. He put $12,000, and now looking for similar credit cards. He wants to fund $20,000 at least. After 12 months he will pay the principal back to the credit cards, and keep the interest. Sounds great, I read few other financial blogs where many people talk about doing it. I make $60,000 a year and have little savings to show. May be that is a good start for me as well. What do you think?

A: Frankly it sounds like a monkey business to me. His $12,000 will give him $780 a year or puny $65 a month in taxable interest. It will help to fill his gas tank may be twice each month, but nothing more. In my opinion it is not worse the trouble for you. With $60,000 income, the chances are you will have to pay income tax on the earned interest, unless you have some sizable tax deductions. 0% interest credit cards are one of the greatest tools you can use. But not in this way. 0% interest is great for debt reduction, paying off any high interest debt, as I described in American Express Blue credit card and City Simplicity credit card articles. You can even pay off or reduce your student loan debt.

I don't think going into extremes, be it frugality, coupon cutting, or monkeying with 0% credit cards is worthwhile. To improve your life, you need to make some rather fundamental changes and/or improvements. But I can't say it any better than I did in Getting rich slowly or die trying first.

Comments

Oh, thanks for the advice. I myself was just going to get a 0% interest credit card for the purpose of investing and make additional earnings in a year. But considering the calculations you make (all those taxes), i'll think if it's worth doing it really... At the same time, I won't lose anything and if i do everything right i'll be able to earn a number of dinners at a restaurant.. *lol*

Posted by: credit card assistance | May 8, 2007 10:52 PM

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