Dirt Simple

While surfing through a number of other personal finance blogs, I stumbled across this concept of credit card arbitrage. It just goes to show you how un-creative I am when it comes to investing, because this technique never even occurred to me.

For those of you unfamiliar with the term, arbitrage refers to taking advantage of a price discrepancy between one market and another. In this case, the concept involves getting a cash advance on a credit card at 0%, and then investing that cash in a high-interest savings account at say, 3%. Just before the end of the 0% period, you pay off the full balance, and you get to keep the interest you’ve earned.

The technique is not without its pitfalls, and if you’re thinking about doing this, I suggest you check out Pitfalls of Using 0% Credit Card Offers To Earn Interest on another blog called Blueprint for Financial Prosperity.

Personally, I think the fact that it takes such a large amount of borrowing to really make it worthwhile is a major drawback. It seems to me that the kind of people who might be attracted to this kind of easy money scheme, are the same ones who are most likely to screw it up, and end up in trouble.