I first heard about this idea from a personal finance blog and thought I would give it a try. Given rising interest rates and what can be earned on money market accounts currently, if a credit card company wants to give you a 0% balance transfer, take it (under the right circumstances) and earn interest on your “loan” until it is time to pay it back.

Dealing with credit card companies can be tricky so you will need to be extra careful if you attempt this. My recommendation is that you only do it if ALL of the following line up for you:

1. You have an excellent credit score.
2. You do not intend to buy a home, car, etc. in the next 12-18 months.
3. The credit card company does not charge a balance transfer fee or limits it to something reasonable like $50-75. Be wary of those that charge a 3% fee or similar. This upfront fee can basically wipe out any potential earnings.
4. You can stay on top of the minimum payments. If you don’t the 0% will instantly go up to some ridiculous rate that you don’t want to be paying.
5. You have the discipline to deposit the money instead of buying a hot tub with it!

Here is how it works:

You receive an invitation for a 0% balance transfer from an existing credit card that you own or a potential new one. Examine the fine print and make sure everything matches up to the above guidelines. If so, use your home equity line of credit account number as the “credit card account” that you will be transferring the balance from. If you do not have a home equity line of credit you are likely out of luck. I haven’t figured out another way to make it work as I outline here. Once the transfer goes through you can then write a check or do an online transfer to your money market account. E*Trade currently pays 5.05% on theirs. There are others that are in that same range. You shouldn’t settle for less than that.

Here is one Free Money Example that I have done recently. After 12 months I will have earned $906 in interest. This particular transfer did not have a transfer fee at all. One other potential side benefit is the forced savings if you don’t pay the minimum payments out of your money market account (you can if you don’t have the cash flow otherwise). In this example I will still have $20k+ in the account at year end and will only have to pay $15,687 to MasterCard to clear the balance. I will have the $906 in interest earnings as well as $4,313 left in the money market account.