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Banks are offering incredible incentives for opening new checking/savings accounts and credit cards lately. Bank of America recently offered $100 to open a new checking account, US Bank $125, Citibank $200 or 20,000 reward points. Chase offered 200 reward points good for $250 cash on the Freedom credit card, BofA $250 cash on the Iowa Rewards credit card, American Express 25,000 reward points (good for $250 gift card), on and on.

How do you find out and pocket this awesome deals?

Maintain a good credit score and a clean history

There are too many factors to list here that goes into this, but assuming you always pay your bills on time, the most important thing to do here is to keep a long history, keep your overall debt to income ratio low, keep your credit balance to credit limit low (below 50% if possible), keep your credit limit to income ratio low, and keep your average credit limit on revolving accounts high (low credit limits on your existing accounts make new lenders suspicious). How do you do this?

• Never close your oldest accounts, no matter how bad the terms are, and utilize the cards occasionally to keep the accounts active.
• Close any new accounts after you have received the sign-up incentive
• Ask for low credit limits on new cards, but close any accounts with a low credit limit as soon as possible.
• On cards you are carrying a balance on (hopefully at 0%!), always maintain a balance less than half of the credit limit. A balance of between 15% and 50% will help your score. Note that many lenders will not report your credit limit, and as such the highest recorded balance on an account will be used as the limit for purposes of credit reporting… keep this in mind.

Closing any account can come with a hidden benefit — see Retention below.

Enroll in a credit monitor service with instant credit score pull

You should expect to pay around $10 a month for a full credit monitoring service with instant pull in the absence of a promotion. This will let you see which issuers are making hard credit inquiries (which temporarily hurt your score). Banks will often pull your credit report even if you are applying for an account (in addition to the usual CHEX Systems inquiry for bank accounts).

Find the best credit card deals

The Finance forum at Fatwallet.com and the forums at SlickDeals.net are awesome for keeping on top of these offers as they come out, and discussing how to perform social engineering on companies who don’t make good on the offers.

Make sure you followed the right link

The same credit card or bank account may be offered through several different links, some with the bonus and some without. Make sure you followed a link that included the bonus, or that you apply the correct promotional code while applying for the account.

Utilize CardSelection.com

CardSelection.com pays a cash rebate when you apply for a card through their website and are approved. Frequently, you can get the same card promotion that you would get externally, and then you get the CardSelection.com rebate on top of it.

Print a hard copy of the offers

Use a screen shot utility or a PDF printer to capture the offer details from your browser. This way, you have the ID/promo code as well as the terms for later reference, or when the company doesn’t make good on the offer.

Use a cell phone number for your work number, but always use your land line home phone number for the home phone number

The home phone number is what is verified during the application process, but the work phone number is what is called later to reference the application. So using your cell phone number as your work number makes it easier to contact you, but using anything other than your land line number as your home phone number is virtually guaranteed to hold up your application. If you are concerned about commercial calls on your cell or work phone, simply place them on the Do Not Call registry.

Credit limits are mostly per-bank

There is an overall credit limit to income ratio that is considered as part of your credit score, but when a particular bank is weighing whether to issue you a new card or not, the most important factor is the ratio of your credit limit with THEM to your income. It makes sense, because they really don’t care if you default with another bank — especially in this age of universal default. All they really care about is the level of risk you pose to them.

One way you can get approved for more cards is by making an online application with the offer you want, and then following up with a phone call to the bank’s credit card application center. The CSA will be able to get your new account opened by reallocating credit lines from another account. They will ask how much of a credit limit you want on the new card, and what other cards you would like them to reduce the credit limit on. (To maximize your chances of success, ask for a low limit and allow them to source the credit limit from any other card.) It is important to call if your application is at all in question (for example, if it is the third, fourth, or more card from the same issuer). If you do not call and you are at or near the limit of credit that bank is willing to extend to you, your application will simply be declined.

If the CSA is curious why you want more new cards, tell them that you like having separate cards for separate categories of purchases (such as online purchases, utility bills, rent, etc), either because it keeps you more organized or because it lets you take care of fraud more easily. Or you could say that you want more accounts because you are trying to build up your credit score. Or you simply like the design offered on the new card. Don’t mention that you are trying to get extra signup bonuses!

Sign up for snail mail offers and maybe email offers

It doesn’t hurt to get promotions in the mail. Just recycle them if you’re not interested. You can usually opt out of phone and email communication without opting out of snail mail. You may want to consider setting up a special e-mail account for bank related stuff, because they do send very nice reward offers through email from time to time (along with spam from companies they sell your info to…) For example, US Bank and Chase are known to send bonus promotions via e-mail, and many rewards credit cards will send special time-limited promotions where you can spend a certain amount of money before a deadline and receive a bonus.

Comply with the terms of the offer

If you don’t think you can comply with the terms of the offer, don’t bother. Noncompliance with the terms of the offer on bank accounts usually is associated with account maintenance fees, to add insult to injury. Noncompliance with the terms of the offer on a credit card with an annual fee that is not waived with the offer is similarly injurious.

Credit card offers are also usually easier to take advantage of (bonus posts after first purchase or after certain amount purchased, while bank offers require so many months of direct deposit, etc). Bank accounts typically have account maintenance fees associated with non-compliance, where credit cards do not. Opening a bank account with a new bank (many bank promotions are for new customers only) is typically quite annoying, because many things can go wrong with getting the opening deposit credited, several forms of ID sent, and getting online access to the account.

Bank accounts frequently require a huge opening deposit to qualify for the bonus, even if there is no minimum balance on the account. To put this into action, if you have a 0%/no-fee cash advance and 0%/no-fee balance transfer combo, use it. Otherwise, utilize an offer at another bank that allows you to open an account and initially fund it with a credit card as a purchase, not a cash advance. Once the ‘bounce’ account is open, transfer the funds to your main account at that bank, and then either withdraw the cash and deposit it at the other bank or initiate a ACH transfer from the other bank’s end. Once the opening deposit has been received at the other bank, simply use their online bill pay to pay off the credit card balance that you sourced the funds from once the credit card statement posts, and continue to comply with the remaining terms of the bank’s offer.

For a nice one-two punch, use a credit card which requires a large purchase requirement to qualify for its opening bonus as the source of the initial funding. Turn it into money by opening a bank account that will perform the initial funding as a credit card purchase. Transfer that money to the bank with the promotion to satisfy the opening deposit requirement, and finally pay the credit card off from that bank after the statement posts. Then you will receive the credit card bonus for nothing more than “purchasing” your own money! And, you will receive reward points or cashback as if you had made a normal credit card purchase. You’ve foiled both a huge opening deposit and a huge purchase requirement at once, by playing them against each other, and come out on top in every way… THAT is how to skin a banker, folks!

Taxes

Most bank account offers will be reported as interest income to the IRS. Credit card offers come in the form of rewards and statement credits, so they are exempt.

Think about how to use reward points

If you can get cash for points at or near 1:1, that’s a no-brainer, take the cash and either take a bite out of any debt you have, or drop it into a high yield CD. If you can only take the reward in the form of gifts, some good investments for rewards for would be home improvement gift cards (increase your home equity) or student loan repayment vouchers. And of course you can redeem your rewards for gift cards for other people for weddings, birthdays, and other special events (upon which you would be buying them gifts anyway).

Don’t go out and buy disposable junk from China, or unnecessary household or entertainment items, just because you feel that the bonus is ‘free’ or that you don’t have a choice how to utilize it. For example, if your only choice is to receive some gift card or voucher that is useless in terms of increasing your equity or happiness, then sell it on EBay. Invest wisely end-to-end on the deal and you come out even further ahead!

Apply multiple times

If there aren’t any better opportunities, it doesn’t hurt to go for the same offer multiple times. The worst that will happen is that your application is declined, or that you fail to receive the offer. Having numerous bank accounts and credit card accounts, even with the same product from the same bank, is common now.

Retention offers

When you call to cancel your credit card or close your bank account after you received the signup bonus, you will occasionally be given a special offer to retain your business. This is especially prevalent on credit cards with annual fees. With credit cards, you can usually just ask straight away if your account qualifies for retention. Take the offer if you want it, then call again after you receive the bonus and attempt to cancel/close again. If they don’t offer retention when you ask specifically for it, don’t then close the account. Call back later and close it. Sometimes they won’t offer retention if you ask straightaway with awareness of it, but if you call and pretend to aloofly ask to close the account, they may counter with an offer.

Arbitrage

While applying for all these bonuses, you might accidentally fall into another good deal. Keep your eye out specifically for:

• Credit cards with 0% cash advances, bank accounts that can be initially funded from a credit card as a purchase, or credit cards with balance transfer checks and a 0% interest offer
• In combination with a 0% cash advance card, credit cards with capped balance transfer fees (i.e., 3% up to $75 or similar) and with a 0% interest rate for some period of time

The goal is to obtain money that you can place into a high yield savings account to make back any fees you paid, and then earn interest free and clear. The 0% cash advance card, initial account funding via credit card, or balance transfer check can be used to take a cash advance which you then transfer to a high yield savings account (earning 5-6%). If you took a cash advance, then use a capped balance transfer card to transfer the balance off that card, avoiding the cash advance interest rate. When the 0% deal is over, use another balance transfer or pay off the card from savings.

Some cards have 0% offers that can be extended as long as the card has regular monthly purchase activity. These are awesome for this scheme.

This scheme will hurt your credit score in the short term, because of the high debt to income and debt to credit limit ratios, but in the end as long as you don’t screw up, your credit score will come out even higher. Don’t do this if you anticipate needing to apply for a loan in the near future, because getting a crappy rate on a long-term loan due to a banged up credit score isn’t worth the few hundred bucks (after income tax) in interest you earn from this scheme.

Bank of America recently started a program called Keep The Change. You need a BoA checking and savings account and a regular BoA (non-rewards, non-branded) debit/check card. The way it works is that any purchase you make is rounded up to the next whole dollar, and the change is deposited into your BoA savings account. For the first three months of the promotion, BoA matches the deposit at 100%, and afterwards at 5%. There is a $250/year cap on the matching earnings, and they are only transferred to your account after you have been enrolled for a year, whereas the change transfers from your own account occur on a daily basis.

Maximizing profit

You maximize your profit when the cents are both minimized and non-zero. You should thus elect to use your check card with purchases where you can choose the final purchase price, such as at a metered dispenser such as a gas pump, or at a restaurant where you leave a tip of your choice, or at a fast food establishment where you can add on cheese or extra sour cream for 10 or 20 cents, or through eBay/PayPal when you can enter your own shipping price for an item. This way, you can ensure that you always receive the maximum match with each purchase by ensuring that the total is at or above, and as close as possible to, a whole dollar amount plus one cent. If you wanted to live on the edge, you could buy only a few gallons of gas at a time — not a bad strategy considering that gas is currently $3 or more per gallon. You could also try asking for cash back when you use your check card at grocery stores, but I’m not sure if non-whole-dollar amounts are acceptable to them.

If you have a utility bill such as cable, telephone, mobile, or DSL which accepts credit/debit transactions, you can try paying the bill in small increments. Remember to make sure it is debited as a debit or Visa purchase, not a EFT. Ensure that each payment is for a different amount so the multiple transactions don’t look like a mistake or fraud.

Examples:

• When paying a phone bill “now”, AT&T allows up to 4 payment sources to be made at a time, as long as the total payment is at least $5. Pay 1.01, 1.02, 1.03, 2.01, for a total of 5.07, and repeat.
• Sprint PCS allows up to 2 credit card payments in 14 days to be made. Pay 1.01 and 1.02.
• A local DSL provider allows as many payments as you wish to be made until the bill is paid. Pay 1.01, 1.02, 1.03, 1.04, 1.05, 1.06 ….

You can pay a charity fund which has a Paypal account in small increments. Paypal eats the fees if it is a special fund. There was a Hurricane Katrina fund which has since been closed. Note that this is not the same as paying a charity which happens to take Paypal, in that case the charity is eating the fees, bad move.

If you have a Paypal merchant or Google merchant account, you can pay that account from your personal account in small increments. You do lose some money to fees in this case, so be careful to watch the fees they are charging. Again, make sure it is debited as a debit/Visa not EFT. Also be aware that if you have a Paypal balance, Paypal will debit it first before going to your check card. So make sure you have transferred all of your money out of Paypal first.

You can also pay Ebay seller fees in small increments, but only if you copy the link that redirects you to Paypal and open up all of the transactions you want to make BEFORE completing the first one. The reason is that Paypal will not let you start more Ebay transactions after a few have been made, but it will not halt those which have already been started.

Since you can earn a maximum of $250 per year, your best strategy is to make 252-253 purchases in the first three months if possible. This is about 21 purchases per week, or three purchases per day. This strategy is defeated if you waste money on purchases that you would not otherwise have made, so be careful!

Rewards credit cards

If you have rewards credit cards, then there is further strategy to be realized.

To game this system requires that you first realize that the maximum profit per transaction is $0.99 during the first three months, and $0.05 thereafter. We assume that you are maximizing this profit below, otherwise the calculations are quite complex. I am also assuming that you pay no interest on the credit card purchases due to a grace period.

First three months

In the first three months, a $19.01 purchase that you make $0.99 on would net approximately a 5% return. If you have a credit card that offers 5% cash back on the same purchase, at this point the return is equivalent. At or below $20.00, you should use your check card, but above $20.00, you should use your 5% cash back credit card. A $1.01 purchase would net almost 100% cash back with the check card!

If you only have a credit card that offers 1% cash back or less for that purchase, then you should use the check card when the purchase price is below $100, and the credit card when the purchase price is above $100. If the return is 0.5%, then $200 becomes the critical price for the first three months.

So, for the first three months, if you have constructed a purchase with a maximum change matching:

• If purchase price is above $20, use a 5% cash back credit card if you have it, otherwise use the check card
• If purchase price is above $100, use a 1% cash back credit card if you have it, otherwise use the check card
• If purchase price is above $200, use a rewards credit card if you have it, otherwise use the check card

After the promotional period

After the first three months, the maximum $0.99 return nets you only $0.05. The critical price compared to a 5% cash back credit card is then $1.00, compared to a 1% cash back card is then $5.00, and to a 0.5%-1% rewards card is between $5.00 and $10.00. Thus, after the first three months, you should always use a rewards credit card instead of the BoA debit card, UNLESS the purchase price is less than $10.00.

For specific strategy, after the first three months, if you have constructed a purchase with a maximum change matching:

• If purchase price is above $1, use a 5% cash back credit card if you have it, otherwise use the check card
• If purchase price is above $5, use a 1% cash back credit card if you have it, otherwise use the check card
• If purchase price is above $10, use a rewards credit card if you have it, otherwise use the check card

After the first three months, since you are only making a maximum of a nickel per purchase, you might reconsider whether it is worth the effort to put any thought into the game, since you can earn far more money for example by being wiser with your spending habits.

Addendum

Some people have reported that BOA will decline multiple 1 cent transactions issued in a row. Automated gas pumps will also blacklist you if you buy penny amounts too often. So spend at least a whole dollar in each transaction. You may get a hold on your account if you use a credit card for small amounts too often. You can help yourself avoid getting stuck with a hold by making sure automated machine transactions, such as those at gas pumps and at the USPS lobby kiosk, are processed as a debit transaction and not a credit transaction.

More ideas on maximizing returns here

Another article

Credit card arbitrage

This might be fun to try sometime if you have the cash on hand to cover a potential misfire. This requires two credit cards issued by different banks.

On one card, take a no-fee cash advance up to your credit limit, then immediately take a balance transfer to the other card (0-6.99% interest rates are common) to avoid the exorbitant cash advance interest rates. The bank covering the balance transfer has no idea nor interest in what the source of the balance was, which is why it is important for the cards to be issued from two different banks. Some companies will allow you to transfer a “balance” that doesn’t exist, giving you a negative balance on another card, which you can then sometimes get a check for the negative amount — an even better deal because cash advance complications are not involved.

Invest the cash advance in short term mutual funds, a money market account, or a CD that matures just before the introductory period expires. If you don’t have the cash to cover a loss, then you need to use a short term CD or a high yield savings account instead! The investment must be at a higher interest rate than the balance transfer’s introductory rate for this scheme to work. When the introductory balance transfer period is about to expire, use the money you invested or your cash on hand, and pay off the balance of the credit card. When you get another credit card offer in the mail, pounce and repeat.

If you don’t get another offer in the mail, use the cash you previously had on hand (and if you were smart, also invested in a money market or high-yield savings account) to pay off the balance. If you have enough credit cards that your debt to credit limit ratio is still reasonable, then wait until your introductory period is about two months from expiry and start applying for new 0% balance transfer cards one by one. The reason you want to wait is that 0% transfers are usually only introductory offers, so waiting means you will be able to time the arrival of the new card correctly. The reason you want to apply for them one by one is because multiple credit card applications will ding your score — and if you open a new credit card account that you don’t use, all it is doing is dinging your credit because your credit limit to income ratio is now higher. Because of this, you should close any new accounts that were opened “accidentally”. Don’t close old accounts that are in good standing.

A better description of this scheme can be found at http://www.mymoneyblog.com/how-to-make-money-from-0-apr-balance-transfers/

Balance transfers

Using credit cards strategically involves paying off in full every month any credit card balance that includes transactions which are assigned an interest rate higher than the rate of return on an investment. Credit card companies will always apply your payment to your lowest-interest-rate portions of your balance first. So don’t take a balance transfer to a card that has a higher interest rate simply on the basis of a low introductory balance transfer rate, and then start using that card for purchases. Your payment principal will go towards your balance transfer and the purchase principal will gradually replace it at the higher interest rate. Use introductory offers to relieve a high balance on another card and force yourself to schedule a payback plan for the balance, but if you must make new purchases, make them on a different card.

Don’t be afraid to ask

… for a lower interest rate, or special balance transfer offers. The worst they can say is no. Frequently, they say yes. Even a few percent reduction saves you real money for nothing more than a few minutes on the phone. It helps to keep your accounts in good standing (no defaults, and breathing room on the balance) so that the companies don’t feel that they might soon have something to gain (i.e. a juicy default) if they do say no. In other words, use this as a periodic bargain hunting strategy, don’t put yourself in the position where you have to use it as a last resort.

Strategize with Rewards

Different cards offer different rewards. Some are in the form of points that can be redeemed for gift certificates and merchandise, others are in the form of cash back. However, many rewards are tied to specific categories of purchases, while others can be applied to any purchase.

For example, a Discover card may offer 5% cash back on gas, and 1% on other purchases. However, a Discover card is not accepted everywhere. A Bank of America Worldpoints card offers “points” in return for purchases of any sort, that can later be redeemed for cash (at about a 0.5-1% rate depending on how many are redeemed at once), or for gift certificates at almost 1%. Cash back is obviously more useful than gift certificates, and with cash back instead of redeeming points for cash, you have faster access to the reward and a better return.

So in this case, you would think of your Discover card as your “default” card to be used wherever it is accepted, and always at a gas pump because the reward is so compelling, and your Bank of America card as your “fallback” card – it is accepted at more places, but the rewards are less useful. So plan your purchases to benefit most from your rewards, and remember to redeem any rewards before they expire (expiration of rewards is usually listed in your agreement).

Rewards make the most sense when you keep your account at a zero balance. Rewards exist because the card companies want you to use your card more, in the hopes you’ll carry a balance and negate the rewards they pay you. You win if you can collect all the rewards through your purchases (plus enjoy the convenience and security of a credit card), but still pay off your balance in full every month. If you spend more on your credit cards than you can pay off in full every month, thus carrying a balance and accruing interest, no rewards program will convert the loss into a gain.

One way to take advantage of rewards is to pay your utility bills with a credit card when possible (on those that give you rewards for services, not only purchases). You’ll build up rewards because of having to pay your utilities on a regular basis. Watch out, though. There is a reason credit card companies occasionally offer special incentives such as airline companion tickets when you pay a utility bill with the credit card. They know that this is a pretty good way to get you “hooked” and into the cycle of paying interest.

One way to minimize your risk in taking advantage of credit card rewards is to transfer the amount of the credit card purchase from your bank account into a savings account at the same bank for holding. Then you know when it comes time to pay the bill, you have it covered in full — no guessing.

A great site to figure out how to deal with all the credit card rewards is CreditCardTuneup.com. You input your periodic spending in all the various purchase categories that credit card vendors offer rewards for, and the site calculates the best cards for you to carry to maximize the rewards.

Store credit cards

Store credit cards are usually a bad idea because of the heinous interest rates and the space they take up on your credit report. However, they are a decent way to get a credit history started or to repair a bad one. You need to watch out for the “0% interest for 6 months” type of deals, because while you pay no interest for 6 months, if 6 months passes and there is still 1 cent left of the balance, you will be backcharged 6 months worth of interest. Of course, the payment plan is scheduled such that you will have a balance left after 6 months, so it is up to you to make sure that you have a zero balance at the time the introductory period expires.

My SO has a nice scheme to easily make money off using store cards. When you must make a big purchase such as a home improvement or appliance purchase, first of all have the cash on hand to cover the purchase, but then make the purchase at a store that offers a store card and put the purchase on the store card. Use the store card to pay for the purchase, and then use your cash to purchase a CD or some other security that matures such that you can have the money in time to pay off the balance just before the introductory period goes away. This way, you are guaranteed two things: one, that you will in fact have the money to cover paying off the store card, because it is bonded and out of your hands, and that you are also making money on that money while you wait out the 0% rate period. Nifty!

Keeping idle accounts open

You may have several credit cards that you carry a zero balance on, but keep the cards around as tools to use when an opportunity arises. Unfortunately, credit card companies have been swifter at closing accounts with zero balances, or even carrying balances but with zero activity, in recent years. One creative way to keep your accounts open is to schedule automatic political or charitable contributions on each account that you wish to keep active, then schedule automatic payments or e-bills from your bank account to automatically pay the balance off at each statement.

Maybe the best part about this scheme is that charitable contributions are federally tax-deductible, and several states such as Oklahoma allow a state deduction for political contributions up to a certain amount. So with this scheme you are keeping your card accounts open by making tax deductible micro-contributions on a regular basis – sounds like a win to me.

Grace periods

By far the best document I have found to describe grace periods is published by American Express. Most credit cards have what is called a typical grace period. You are charged interest on new purchases made during that month, unless you paid the previous month’s bill in full. I have to experiment and find out what this means.

It could mean that if you pay the balance in full by the due date, no interest is charged on new purchases made in the meantime is dropped. This is how people I have talked to typically understand a grace period.

However, it could also mean that you must have a zero balance at the end of some billing cycle before a grace period is applied. That means you must include in your payment a sufficient amount to cover all purchases that will have been made up to the next billing date. This in itself would be incredibly inconvenient. What would make it even more inconvenient is if you have any unexpected activity such as periodic billing from a vendor, that pops in and screws up your calculation.

In this case, you would also need to account for, and pay before the statement date, any new purchases AND any automated billing activity. Otherwise, you will be permanently stuck in a no-grace-period cycle, because even though you are paying off the previous month’s balance every month, you continue to carry a balance forward with the new activity, and so the grace period does not apply, because at no point did you have a zero statement balance.

I’m running an experiment on one of my credit cards right now, and I’ll post the results in a few months.

Case Study: Buying a car

Figure out how much you want to spend, then have that amount of cash in hand before you buy. If you don’t have the cash but you have the income to cover a new car, you can do the following. First, attempt a personal/signature loan for that amount, with no lien, from your bank or credit union. No lien means you pay a higher interest rate, but you are free to do whatever you wish with the car. If you can’t get a no-lien loan, then try to get a loan with a lien. Failing that, if you have two credit cards from two different banks, where one has a no- or low-fee cash advance and the other has a balance transfer offer, then take a cash advance from the one card and immediately transfer the balance to the other card. You then have cash in hand and pay off the loan at the balance transfer APR.

Once you have cash in hand, you can then buy from a private seller, or you can play the financing game at a business. Businesses love to sell financing, because it makes a lot of money for them when people make the minimum monthly payments. So you can pretend to not have the money, and negotiate a lower price for the car with the understanding that you will be financing it. Since you have the cash on hand, you can immediately pay the loan off the next month.

An important catch here is to ensure that the any prepayment penalties are sufficiently low or non-existent, such that it is still a good deal for you to take the financing discount instead of paying straight up cash…