What 25-day investment, principal guaranteed, can be used for credit card arbitrage?

Question

What is the most profitable 25-day investment I can make that guarantees that I at least get the principal back? Notes:

• Many brokers accept credit card deposits w/ no fees, and the credit card company counts it as a purchase, so I have a 25-day grace period with no interest.

• So, I can invest using my credit card, pull back the money within 25 days, and show a profit. I can then repeat the process monthly. I have 100K total spending limit, so the profit might be nontrivial.

• I know Treasury notes/bills/strips (whichever ones expire in ~25 days) and money market funds are two options, but are there any more profitable ones?

• I'm OK w/ the profit being variable (even zero), but need to preserve the principal to pay back my credit card.

Answer 1

For this scheme to work, you would require an investment with no chance of a loss. Money market accounts and short-term t-bills are about your only options.

The other thing is that you will need to be very careful to never miss the payment date. One month's late charges will probably wipe out a few months' profit.

The only other caveat, which I'm sure you've considered, is that having your credit maxed out will hurt your credit score.

Answer 2

A lot of these schemes fail to take into account the time/effort you have to spend in order to extract the small amount of profit you would get. If there were easy money to be made, people would start making it and the company that was allowing themselves to be swindled would put an end to that deal. So these things usually don't last.

You used to be able to order dollar coins from the mint via credit card, with no shipping. This was risk free and allowed you to earn credit card points. But the mint has effectively plugged this hole.

Answer 3

Although this scheme is likely to get shut down rather quickly by either your broker or credit card company some points you seem to have missed out on.

Properly timed you should be able to get ~55 days of grace period (30 day billing cycle + 25 day grace period) assuming you pay everything off every month and charge immediately following the statement date.

You will need to avoid certain card issuers that code all transactions with financial institutions as cash advances (Citibank in paticular). If it is possible it would be in your best interest to lower cash advance limits to 0 to avoid any chance of cash advance fees. If your credit card attempts to process it as a cash advance the transaction will just be declined and you won't be out anything. Otherwise one cash advance fee will eat several months worth of profits.

As far as investments with guaranteed principal goes the only thing you can realistically do is money market accounts and maybe treasury notes. Anything else and the short term price fluctuation may leave you high and dry.

If this scheme were to work you would be much better off attempting to get rewards for the purchases than anything you could invest in. If you used a 2% card and churned it every month you would be looking at a 24% return on credit card rewards. Even 1% rewards gives you a 12% annual return which is going to beat anything you could invest the money in.