This Guy Found a Creative Way to Take His Cash-Back Credit Card to the Next Level
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After getting 14 new credit cards in 2015, I made over $2,000 in sign-up bonuses.
I also burned through most of the best offers — and knocked at least 10 points off my credit score. It was time to try something new, at least until my score bounced back and new offers popped up.
Fortunately, I stumbled into a way to make $450 from a credit card without a sign-up bonus.
It happened when I went to our local Sun Trust Bank to open a checking account to earn a $200 bonus. It only took 15 minutes — one of the more efficient and friendly banks I've used.
Then the banker suggested I apply for a Sun Trust MasterCard…
It Pays to Listen
When I hear a sales pitch coming, I normally look for the door.
I had plenty of credit cards, I explained, thinking, “Why would I want one that doesn't even offer a sign-up bonus?”
The nice banker told me the card pays 5% cash back on up to $6,000 of gas station and grocery store purchases the first year.
My ears perked up.
“Is that just on groceries, or anything in a grocery store?” I asked. She assured me I would get 5% cash back on all purchases at grocery stores.
She’d just made over $200 on her card.
Even better, redeeming the cash rewards into my checking account would get me a 10% bonus — putting the total cash back at 5.5%.
The credit card center in my brain lit up. Tell me more.
And there was more. The card charged no interest for the first year.
A few minutes later I was approved for an $8,000 limit.
Stack Those Moneymaking Tactics
I've always been a fan of stacking savings tactics.
I buy things on sale with discounted gift cards, purchased with a cash-back credit card (a classic triple-stack).
It's less common to find opportunities to stack moneymaking tactics. But in this case, there were two distinct ways to cash in with the same credit card:
- Maximize the cash-back rewards
- Invest 0% money
Maximizing the Cash-Back Rewards
As soon as I received the card, I went to Winn-Dixie and bought groceries, along with a couple $500 Visa gift cards.
The latter I liquidated by using them to load my Bluebird account. This kind of manufactured spending is a topic for another day. Bottom line: I paid two $5.95 fees and soon had the money back in my bank account.
In just a few days, my cash-back awards total on my account showed over $50. I've never seen awards show up so quickly.
I did a test purchase at Walmart. Sure enough, I earned 5% cash back.
As far as I know, all other credit cards code Walmart as a “variety store,” not a “grocery store.” I'm really starting to love this bank.
This was good news. I normally buy groceries at Walmart — their fee for $500 Visa gift cards is only $4.94. I bought a couple, along with my groceries.
I used the credit card for gas to get 5% back, except when I was at Shell stations. I use a double-stack strategy there to knock about 12% off the price at the pump.
Within a month, I had a balance of almost $5,000 on the card, and I paid the minimum when the statement came in (2% of the balance).
I later ran the balance up to about $6,500 — fully maximizing the 5% cash-back and earning 1% on other purchases.
Meanwhile, I was setting up part two of my strategy…
Investing the Credit Card Company's Money
I normally pay my credit card balances in full every month. I had the money to pay, but instead of paying, this time I invested it.
I had previously discovered FDIC-insured savings accounts that pay 5% interest, and had one already. It was time for another.
I signed up for a Brinks Prepaid MasterCard and set up one direct deposit of $500 in order to get upgraded. It qualified me for a connected 5% savings account.
It took a couple weeks to set it up, and I have to have activity once every three months to avoid fees, but the $5,000 I moved into the account is making a 5% annual percentage yield (APY).
I'll make minimum payments on the Sun Trust MasterCard until just before interest charges start. Then I'll pay it off using the Brinks account money or other funds.
In other words, I'll use the credit card company's money to make 5% interest for about 10 months. I'll collect about $210 in interest.
Using 0%, or low-interest money, from credit card companies to invest at higher rates is sometimes called “stoozing” or “credit card arbitrage.”
By the time I maxed out the 5% cash-back rewards and got the 10% bonus for redeeming them to my checking account, I had collected $340.
But in the process, I paid about $60 in fees for those Visa gift cards, so I really made only $280.
Between the $280 I've already netted from cash rewards and the $210 in interest, I'll have made $490 by this summer on one credit card.
Every little bit helps.
Should You Try This?
If you aren't well-organized, you could get into trouble with this strategy.
For example, if you forget the deadline and have a $5,000 balance when the credit card starts charging interest, you might owe $100 in interest before you know what happened.
And then there’s this important warning: A high balance on a card can lower your credit score, because it negatively affects your credit utilization ratio.
The score should bounce back shortly after you pay off the balance. But, if you plan to borrow for a home or car soon, use this strategy after you get the loan.
Also, the offer I used is from a regional bank. It may not service your area, and the terms may have changed by the time you read this.
But if you’re ready, the basic strategy is the same with other credit cards and savings accounts.
In fact, as I write this, you can do a triple-stack with the Chase Freedom card. Here's an example of what you might do:
1. Get the Bonus
Spend $500 on the card within three months and you'll get a $150 bonus.
2. Maximize Those 5% Purchases
The 5% categories change quarterly and are limited to $1,500 in purchases per quarter.
Look for categories for places to buy debit gift cards or gift cards for stores you normally shop.
You should be able to make $375 in cash back in the first 15 months. If you can make enough ordinary purchases to avoid fees for buying debit gift cards, the money is pure profit.
3. Invest the Money
The card charges no interest for 15 months.
Max out those 5% Chase Freedom categories to earn cash back and build your balance. Pay just the minimum each month.
Eventually, you can have a balance of $5,000 or more, and have the money ready for the payoff just before the 15 months are up.
Get a Mango card, and set up direct deposit of your paycheck to qualify for a linked 6% savings account. Mango has a $3 monthly fee, and if you don't continue with a monthly direct deposit of at least $500, your interest rate drops to 2%.
Put your credit card payoff money in the savings account.
If your average balance is $4,000 for the first 15 months (or less — the maximum that earns 6% is $5,000), you'll collect $300 in interest and pay $45 in fees — a net profit of $255.
Your total between the bonus, the cash back and the interest: $780.
The Mango savings account is FDIC-insured, but it takes some work to set up and maintain.
To keep it simple, you could open an account at MySavingsDirect.com, currently paying 1.10% without any catches.
Of course, your interest will go down to $55 for 15 months, but you'll still make a respectable $580.
Your Turn: How do you make money with your credit cards?
Disclosure: We don’t hesitate to pick pennies off the sidewalk when we spot them. But the affiliate links in this post help our earnings grow even quicker. Plus, it’s a lot cleaner than sidewalk money. Please read our full disclosure policy here.
Steve Gillman is the author of “101 Weird Ways to Make Money” and creator of EveryWayToMakeMoney.com. He's been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror, and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).