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Author: Azurik Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Make $580 free using I-Bonds and Credit Cards. Date: 6/29/2003 3:16 PM
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Here's how you can make $580 of free money using I-bonds and credit cards. Thanks LittleHulk:)

1. Apply for 2 cards - 1 offers rewards and the other offers 0% for 12 months. For example, I have an American Express Platinum Business Card with 1.5% cash back. You use the first rewards card to purchase $7600 of I-bonds. You then transfer the balance to a 12 month 0% credit card. For example, there's a promo for the Citi Platinum Select MasterCard. 0% APR on balance transfers until September 1, 2004! Go to www.lowrate.citicards.com to apply and enter the promo number 1358337. Then you transfer (not cash advance) an additional $2400 from the 0% credit card to yourself (or to your family member if they do not allow to transfer money to yourself and have your family member give you back the money).

2. You now owe your 0% credit card $10,000. You owe your first card with the rewards nothing. You have $2400 of cash, and you own $7600 of I-bonds from US treasury.

3. You place the $2400 in a money market account that earns 2.2% Netbank, or if you have ING that earns 2.0%. You must pay your 0% credit card the minimum balance of 2% each month, roughly $200 (2% x $10,000). You will use that $2400 to pay your 0% credit card. Set up auto-pay to avoid late fees.

4. Sit back and count your money. Redeem the bond after 12 months and pay off your 0% card account.

I-bond: 4.66% (as of 06/11/03)
Minimum wait time before redemption: 12 months
Penalty for early redemption prior to 5 years: 3 months interest
Interest earned after 12 months = 7600 * 4.66% * 0.75 (penalty) = $265
After tax income (assume 25%) = $265 * 0.75 = $200
Rewards Incentives: AMEX 1.5% cash back = $7600 *1.5% = $114
or GMCard* 5% = %7600 * 5% = $380
Total After Tax Free Money = $200 + 380 = $580

*GMcard 5% is for use toward purchase of a new GMC vehicle, not cashback.
*Netbank offers $50 to open an account. Interest from Netbank's $2400 is about $20.
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Author: PucksFool Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7752 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 4:50 PM
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Thanks for your explanation of how to use the zero interest credit cards to the investor's benefit. This procedure comes up on this board from time to time. Your explanation was clear and specific.

I think this practice is a good illustration of how desperate the lenders are to attract business on the hopes that at the end of the time period they will be able to slap the borrower with large credit charges. Of course that won't apply to anyone here using your strategy.

PF

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Author: PleaseAndThanks One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7753 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 4:56 PM
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Hi Azurik. There's no guarantee that I-Bonds will continue to pay 4.66%. I-Bond rates are readjusted every May 1 and November 1. Keep in mind too that money market rates can change even faster than that. Also I wouldn't encourage people to apply for more credit and run up a balance but that's just me.

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Author: Azurik Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7754 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 6:13 PM
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<<Hi Azurik. There's no guarantee that I-Bonds will continue to pay 4.66%. I-Bond rates are readjusted every May 1 and November 1. Keep in mind too that money market rates can change even faster than that. Also I wouldn't encourage people to apply for more credit and run up a balance but that's just me.>>

I understand that, I'm using the 4.66% as a rough estimate. In my belief, interest will not fall by much more and using a 4.66% will gauge a fairly accurate reading for the next 12 months.

Regarding applying for more credt.. the post I made assumes you are using this credit solely for bonds. I DO NOT recommend you purchase other things with the 0% card, as there will be an APR applied to the non-balance amount.

If you manage it right, you come out ahead with no risk.

Again, JMHO's.

Sincerely,
Azurik

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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7755 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 6:32 PM
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I understand that, I'm using the 4.66% as a rough estimate. In my belief, interest will not fall by much more and using a 4.66% will gauge a fairly accurate reading for the next 12 months.

We currently have only 2 out of 6 months CPI-U data available, so this doesn't mean much. But if my calculations are correct (they may not be, of course), so far the CPI-U for the next period is running at a -2.2% annualized rate. Therefore, unless we have a nice spike up in the inflation rate over the next 3+ months, the total interest rate for the next 6-month I Bond period may be ZERO percent.

If that were to happen, the total 12-month yield would end up being about 2.3%.

Ken

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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7756 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 6:35 PM
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I can't help but add a postscript.

Assume for the moment that the next 6-month inflation component did come out to be -2.2%. There's NO WAY the government would up the fixed portion to make the total yield on new I Bonds > 0%. I wonder how they'd market that?
EE Bonds:  2.0%
I Bonds: 0.0%

:-)

Ken

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7757 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 8:20 PM
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Assume for the moment that the next 6-month inflation component did come out to be -2.2%. There's NO WAY the government would up the fixed portion to make the total yield on new I Bonds > 0%. I wonder how they'd market that?

This could be interesting. It would be quite nice if they *did* up the fixed-rate portion to 3% in order to get an I-bond rate that looks marginally presentable...even with that terrible rate for the first 6 months, I would have to buy up a few thousand at least...

But like you said...there are still 4 months of CPI data to collect before we have to really wonder too deeply...

ACME

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Author: PleaseAndThanks One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7758 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/29/2003 11:24 PM
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Regarding applying for more credt.. the post I made assumes you are using this credit solely for bonds. I DO NOT recommend you purchase other things with the 0% card, as there will be an APR applied to the non-balance amount.

I remember a loan application that asked if I owed more than $1,000 on credit cards. Applying for a new card puts an "inquiry" on your credit report for two years. Get "too many inquiries" and your FICO score drops. Also when a credit card balance approaches the account credit limit, that can lower your credit score.

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7759 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 12:21 AM
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>>Get "too many inquiries" and your FICO score drops

Yep, that's surprising but true. Fortunately you have some FICO leeway with any credit application...applying for or having a lot of cards in and of itself won't stop you from getting a mortgage, for example. You really have to default on debt and have that default reported to the agencies for your score to drop out of the most desirable range.

My 0 APR cards are maxed out and the money (indirectly) is invested in the market...free money is free money, IMO.

Nick

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Author: Azurik Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7760 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 2:44 AM
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>>Get "too many inquiries" and your FICO score drops<<

>>Yep, that's surprising but true. Fortunately you have some FICO leeway with any credit application...applying for or having a lot of cards in and of itself won't stop you from getting a mortgage, for example. You really have to default on debt and have that default reported to the agencies for your score to drop out of the most desirable range.

My 0 APR cards are maxed out and the money (indirectly) is invested in the market...free money is free money, IMO.

Nick<<

That is my thinking. Free money is free money. According to one of my FICO score simulators, I would need to have 12 credit inquiries to have my score go down, and even so, not much. If you have a rewards card already, you really only would need to apply for one credit card.

And having your debt go near the balance is typically unwanted, but your debt to credit ratio is more important to the FICO score. For example, I own 11 credit cards (yes, I use them all for specific purposes) with a total credit limit upwards of $400,000. My debt for carrying this is $10,000. My debt to credit ratio is only 2.5%. For basically free interest on someone else's money, I would do it personally.

The previous poster on CPI-U data is correct. In theory, the CPI-U could drop making the bonds less appealing. However, with Savings account's interest and such so low, IMHO, besides stocks, bond is a good investment for the next 12 months that offers liquidity soon.

Sincerely,
Azurik

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Author: Azurik Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7761 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 3:10 AM
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<<We currently have only 2 out of 6 months CPI-U data available, so this doesn't mean much. But if my calculations are correct (they may not be, of course), so far the CPI-U for the next period is running at a -2.2% annualized rate. Therefore, unless we have a nice spike up in the inflation rate over the next 3+ months, the total interest rate for the next 6-month I Bond period may be ZERO percent.

If that were to happen, the total 12-month yield would end up being about 2.3%.

Ken>>

Ken,

Ken, you are right, I just want to clarify to readers.. if you bought the funds today, you would be locked in the 4.66% rate for the next 6 months. After the 6 months, the new rate set at the end of October would take effect. However, since you are going to lose the last 3 months of interest anyway due to the early withdrawal penalty, only half of the last 6 months is relevant. Also, I'm willing to bet it won't be -2.2%:)

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7763 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 7:57 AM
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"That is my thinking. Free money is free money."

There's a recurring theme in fiction and film—Faulkner's The Hamlet, The Flim Flam Man with George C .Scott, and of course, The Sting, are good examples—to the effect that the easiest targets for a scam are those who think they are the ones getting away with something.

There ain't no such thing as "free money."

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7765 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 1:14 PM
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There ain't no such thing as "free money."

You're right--it will be taxed at ordinary income tax rates. 8)

I have been trying to think of the down side of this scheme and so far I have come up with mostly indirect effects, though there is one direct effect:

1. If one is ever late on a payment with a 0% card, the interest rate is likely to climb instantly. It doesn't even have to be your fault--items do get delayed or misdelivered in the mails. (Once I have the card, I would be tempted to try to find if the card's web site allows for ACH direct debit to make the payments on my schedule, so the risk would be the electronic Automated Clearing House system, not many manual handlings of the check.)

2. Hard inquiries do affect one's FICO score. How much depends on a bunch of other factors and how many inquiries.

3. Running a significant balance on a revolving trade line (credit card) can negatively affect the FICO score. I have seen 35% and 50% mentioned as two significant numbers--the ratio of the total revolving debt to the total credit limit on all revolving accounts--the FICO score taking a hit when 35% is breached and even more when 50% is breached. I have also heard that there is a lesser hit when these limits are broached on individual cards.

4. If one wants to get a mortgage (buy a home or refinance), one of the numbers looked at is long-term debt payments (debts that won't be paid off in less than 6 months). High credit card balance implies high monthly payments (typically minimum amount due each month is 2% to 3% of the credit card balance). Historically, mortgage underwriters wanted housing costs (Principal & Interest for the mortgage itself, property Tax, and home owners Insurance, the whole set sometimes abbreviated PITI) of no more than 28% of one's gross income, and housing costs plus all other long-term debt payments being no more than 36% of one's gross income. When those ratios are exceeded, mortgage underwriters are taking on more risks and will charge a higher interest rate to compensate them for the additional risk, which means the mortgage would be more expensive.

5. As mentioned above, credit cards typically have a minimum monthly payment, usually in the 2% to 3% range of the balance. One will have to be able to make those payments for up to 11 months before the savings bond can be redeemed. So one will have to have the cash flow to handle it and, in case income is interrupted, have reserves someplace to handle those payments. (Again, if payments are missed, late, or under the minimum amount due could give the card issuer all it needs to suddenly raise your interest rate to penalty rates.)

Since the Savings Bonds Direct area is planned for discontinuance, one of the objectives specifically to eliminate credit card purchases, all this discussion could very well be unnecessary by the end of the year. The Treasury Department is moving towards the book entry form of savings bonds instead of paper bonds and the use of ACH for paying for (direct debit) and redeeming (direct deposit) savings bonds.

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Author: PleaseAndThanks One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7767 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 4:28 PM
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My 0 APR cards are maxed out and the money (indirectly) is invested in the market...free money is free money, IMO.

Posting that here seems like somebody slipped consomme into a vegetarian's tomato juice. 0% today, 1% tomorrow?!?

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Author: susan400 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7771 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 6/30/2003 11:12 PM
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On lower Broadway in NYC,

there is a jewelry store that has been going out of business
for 15 yrs.!!!

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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7772 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 7/1/2003 2:09 AM
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From tomorrow's WSJ:

Best Deal Yet? 0% Interest for Life

Two Credit-Card Issuers Offer to Lock Rates
On Transferred Debt; Late Payments Pay Price
By ZACHERY KOUWE
Staff Reporter of THE WALL STREET JOURNAL


Two major credit-card issuers are making an offer that seems too good to be true: a 0% interest rate "for life" on balance transfers.

The deals, which take advantage of the lowest interest rates in 45 years, are designed to lock in customers and keep them from jumping from card to card.

For years, card companies have lured customers into transferring balances by barraging them with special introductory rate offers. When the teaser rates expire, however, customers often switch their balances to a new card with an equally compelling initial rate.

Now, two issuers -- Morgan Stanley's Discover unit and J.P. Morgan Chase -- are offering some customers 0% rates for life on balance transfers. "There are a substantial number of customers who just keep playing this game between one issuer and the other," says Rajive Johri, an official at Chase, which is hoping its lifetime guarantee will result in more lifetime customers.

An additional 10 banks or credit-card companies are promising that customers will pay interest rates of anywhere from 1.9% to 4.99% for life. In all, about a tenth of balance transfer offers on credit cards now carry lifetime guarantees, according to a June survey by Mintel's Comperemedia, an advertising research firm.

The lifetime deals, however, come with some major hitches. There's usually a severe penalty for late payments. The Discover Platinum card, for example, charges 19.99% interest to anyone who misses a single minimum payment and then permanently cancels the 0% deal. That means a customer with a $20,000 balance transfer, suddenly is stuck paying $4,000 a year in finance chargesA similar penalty applies to most of the other "for life" cards....



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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7773 of 35400
Subject: Re: Make $580 free using I-Bonds and Credit Card Date: 7/1/2003 8:54 AM
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"The lifetime deals, however, come with some major hitches. There's usually a severe penalty for late payments. The Discover Platinum card, for example, charges 19.99% interest to anyone who misses a single minimum payment and then permanently cancels the 0% deal. That means a customer with a $20,000 balance transfer, suddenly is stuck paying $4,000 a year in finance chargesA similar penalty applies to most of the other "for life" cards...."

Funny thing about "loss-leaders": businesses don't do them if they don't pay off.

I'm sure there are plenty of "clever" folks who are convinced they can juggle the loss-leaders without ever dropping the ball. The banks are betting enough of these "clever" folks will drop the ball. I'm placing my bet on the banks.

Sh*t happens to folks. Juggling is hard enough when you can concentrate, when no one is throwing new balls (or meat cleavers) at you, and when your arms aren't getting tired, let alone when your shoulder gets dislocated.





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