Credit cards offering 0% interest (at least, temporarily) on purchases are common today, but 10 years ago those offers included no-fee convenience checks. Back then, I had a savings account paying 4% interest, so I wrote and deposited a $4,000 convenience check — and over the next year, made $160 in interest.
I paid the minimum payment on the card every month and when the 0% promotional period ended, I used the money in savings to pay the credit card balance. In other words, I collected interest on money that wasn’t even mine.
The strategy caught on big in the UK, where it was called “stoozing.” One man made about £5,000 ($7,800) per year in interest doing this, reported The Telegraph! After a credit crunch and changes in the promotional offers, this kind of credit card arbitrage mostly faded away, but one British blogger says stoozing is making a comeback in the UK.
The problem here in the U.S. is the combination of fees for using those convenience checks and low interest rates on savings accounts. So can stoozing still work? Yes. It isn’t always simple, but if you modify the strategy a bit, you can still make money playing this financial game.
If you’re ready to give it a shot, here’s a step-by-step guide to stoozing.
How to Become a Stoozer
Follow this process to try stoozing for yourself.
1. Get the Right Credit Card
You need a card that offers a 0% rate for as long as possible; one that offers 0% on purchases for a year or more is ideal. It also helps if it offers cash back on purchases.
The handy chart at CreditCardGuide.com shows several cards offering 0%, some valid for 15 billing cycles. At the moment, one card offers 0% for 12 months and gives you 1.5% cash back with no limit.
2. Find the Right Bank Account
BankRate.com shows several banks offering around 1%, which is better than nothing. But temporary promotional rates work for this strategy as well, since you’ll typically only keep the money in that account for a year or so anyhow.
Curious about your options? Check out the chart at the bottom of this post for the current rates from various nationwide banks.
3. Put Everything on the Card
The key is to buy only what you normally purchase, but put it all on your stoozing card or cards.
A cashback card helps boost that return, of course. If you use two or more cards, pay attention to which categories pay the most cash back on each, so you can use the right card for each purchase.
4. Pay Into Your Savings Account
The idea here is to “pay” for everything you put on the card by putting the equivalent in cash into your savings account.
You don’t need to be precise about this, as long as you err on the side of putting too much in the account. If you spent about $470 using the card this month, deposit $500 just to be safe.
5. Make Only the Minimum Payments
Pay the minimum required on the card each month, so you can keep as much money as possible in your account and earning interest. Avoid late payments, or you’ll lose your 0% rate and pay more in penalties and interest than you’ve made.
6. Mark Your Calendar
You need to know exactly when the promotional period ends for each card so you can complete the last step…
7. Pay the Balance in Full
When the 0% period ends, you’ll need to pay off the remaining balance on the card. You’ll have the money for this in the savings account, of course.
What’s left in the savings account after you pay off the card’s balance in full is your profit.
Should You Try Stoozing?
Not everyone is cut out to be a stoozer. You have to have a good credit score to qualify for those 12-to-15 month, 0% credit card deals. KreditKarma.com suggests you need a score over 700 for some 0% offers.
You have to be disciplined. If you don’t put the money you spent on the card in that savings account, or if you spend your savings along the way, you might not have enough to pay off the balance once the promotional period ends. If that happens, the high interest you’ll pay will quickly eat up anything you earned in the savings account.
You also have to be very organized. Schedule those deposits, and note when the balance needs to be paid in full. And if you make one late payment, you’ll probably lose everything you gained. If you mix the stoozing money with your regular savings, at least segregate the payoff money on paper to be sure you don’t touch it.
But if you have a good credit score, decent self-discipline and solid organizational skills, you might be a natural stoozer.
How Much Can You Make?
It’s tough to make much money through stoozing in today’s credit climate because of fees on cash advances and low interest rates on savings.
Let’s consider an example. Suppose that during the promotional period you spend $7,000 on a card that gets you 1.5% cash back, and you have an average balance of $4,000 in a 1% savings account until you pay off the card. You would make about $150 in 15 months between the interest earned ($45) and the cash-back bonuses ($105).
In the right circumstances, the returns can be more substantial. For example, let’s say you have one of those 3% Kasasa checking or savings accounts, and you’re about to pay $8,000 cash for a used car. Leave the money in the bank and pay for the car with a Citi Double Cash Card, which pays 1% cash back when you buy and another 1% when you pay. It also offers 15 months at 0% interest. Between now and when you pay off the card in 15 months, the numbers would look like this:
- $80 cash back upon purchase
- $80 cash back when paying the balance
- $260 interest on savings (approximately)
That’s a $420 profit using the credit card company’s money! Clearly this works best when you have large purchases planned, and when you have a high-interest savings or checking account.
Another trick to stoozing is to keep rolling over the balances if you can find new cards that offer both a 0% introductory period and no transfer fees. At the moment, NerdWallet.com lists only one card that has such an offer. Using that card in our example, you could roll over the balance for another 15 months and make a couple hundred dollars more in interest.
One financial blogger says he’s had as much as $200,000 in credit card balance transfers held in savings accounts. He looks for higher interest rates by using long-term CDs, assuming that as the promotional periods end he’ll be able to roll over the balances onto new 0% cards. Of course, even if he can’t roll it over the penalty for breaking the CDs may be less than the interest gained using these tricky money moves.
It’s also possible to make these strategies work when interest rates are not quite as low as 0%. For example, I once cashed a $5,000 convenience check that offered a 0% interest rate for a year, but charged a 3% fee. That means I paid a fee of $150, but I loaned the money out for a year at 9%, collecting $450 in interest, for a net profit of $300. Of course, this plan could have been risky if I didn’t completely trust the borrower.
For us smaller players, these strategies will make more sense when (and if) savings accounts start paying 4% interest or higher (like they used to). That’s when you’ll see stoozing really make a comeback in the U.S. But in the meantime, if you’re a natural stoozer, it can be a fun way to make a little extra money.
Your Turn: Have you ever tried stoozing or similar credit card arbitrage schemes?