Interest Arbitrage via Churning

Old May 28, 18, 11:17 am
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Interest Arbitrage via Churning

With rising interest rates, I've been considering leveraging Alliant Cashback, Plastiq, and Chase Slate to gain access to 0% interest margin to invest in conservative corporate bonds. The main flow of money is:

Sign up for Alliant Cashback (3% cash back) -> send myself a $30,000 check via Plastiq (2.5% lost to fees) -> buy 1-2 year corporate bonds yielding 2.8% -> transfer Alliant balance to Chase Slate for 15 months of 0% margin -> enjoy the .5% cashback difference and 2.8% interest from bonds to gain a quick $990 in taxable capital gains ($30000*[2.8%+.5%])

Some variables I need help understanding that could erase my thin margins are:

*Alliant classifying the 30k as a cash advance

*Chase Slate limits the 0 fee balance transfer to 30k per card (could open another one with one of my EINs)

*Somehow the IRS considering the entire 30k Plastiq check as income during an audit

What does everyone think about this idea?
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Old May 28, 18, 12:32 pm
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Is there a transfer fee for sending it over to Chase?
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Old May 28, 18, 1:17 pm
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Plastiq won’t let you send yourself, or a business controlled by you, a check. Unfortunately. They won’t do person-to-person either.
If you can figure a way out to get the check, it otherwise sounds like a good plan. One thing to keep in mind is that 3% card has a tendency to stop giving 3%back without warning, however (e.g., GCM, GC.com)

Edit: I would look at the opportunity cost too. That's 2 new personal cards and a lot of waiting, with possibility for loss at multiple steps. It is couch MS though. It's like I did in college--buy 1 month T-bill with a CC. Too bad I had a low credit line and not super rewarding cards! Most of the gains were from interest (which was considerably higher than now.)

Last edited by NeGourmand; May 28, 18 at 2:30 pm Reason: addition
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Old May 28, 18, 1:22 pm
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Originally Posted by Jesperss View Post
Is there a transfer fee for sending it over to Chase?
not in the first 60 days of opening the credit line. Keep in mind it's covered by 5/24
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Old May 28, 18, 1:24 pm
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Originally Posted by NeGourmand View Post
Plastiq won’t let you send yourself, or a business controlled by you, a check. Unfortunately. They won’t do person-to-person either.
If you can figure a way out to get the check, it otherwise sounds like a good plan. One thing to keep in mind is that 3% card has a tendency to stop giving 3%back without warning, however (e.g., GCM, GC.com)
And now the thin margins disappear
Payapl, venmo will do it for 2.95%. but that hurts my margins.
The 3% card is only valid for 1 year.

Also this will nuke my personal utilization rate
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Old May 28, 18, 1:59 pm
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Most financial advisors would tell you that is a lousy deal. $990 post-tax means $643 if you pay a total of 35% in federal, state, and anything else. That is a small gain against pretty much any risk profile other than perhaps US Treasuries.
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Old May 28, 18, 2:18 pm
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IME you're not likely to get a CL that high with Alliant without a previous banking history. $10-15K is usually the most they tend to give to new members.
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Old May 28, 18, 2:34 pm
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Can you have Plastiq send a check to wherever you're buying the bonds at? This would avoid sending a check to yourself and the plastiq fee (I think).

But if you're willing to float for that long, you might want to check out Kiva. I haven't used it yet myself, but I think you'll get higher returns, and it's setup to take credit cards directly avoiding plastiq altogether. If you do go Kiva, make sure you spread out the money instead of dumping it all into one project/loan.
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Old May 28, 18, 2:50 pm
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Originally Posted by Often1 View Post
Most financial advisors would tell you that is a lousy deal. $990 post-tax means $643 if you pay a total of 35% in federal, state, and anything else. That is a small gain against pretty much any risk profile other than perhaps US Treasuries.
Lol, it's long term capital gains since it's over a year and my taxable income puts me at the 0% capital gains tax bracket. Also AAA corporate bonds are essentially treasuries
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Old May 28, 18, 2:52 pm
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Originally Posted by Prometheus77 View Post
IME you're not likely to get a CL that high with Alliant without a previous banking history. $10-15K is usually the most they tend to give to new members.
That's fair.I'm sure there are some 2% cards with a decent sign on bonus that could be subsituted in for
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Old May 28, 18, 3:05 pm
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Capital Gain Treatment for Bond Interest?

Originally Posted by ether161 View Post
Lol, it's long term capital gains since it's over a year and my taxable income puts me at the 0% capital gains tax bracket. Also AAA corporate bonds are essentially treasuries
Please explain how you would be getting capital gain treatment on bond interest.
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Old May 28, 18, 3:47 pm
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Originally Posted by ether161 View Post
That's fair.I'm sure there are some 2% cards with a decent sign on bonus that could be subsituted in for
That's something else to be careful of. If you're making the check out to yourself or buying bonds, the credit card company will probably consider these cash equivalents, and charge them as cash advances instead of purchases. Not only will you wind up paying a cash advance fee, the CC might not count it for minimum spend. Do a small test purchase first and see how it works out. Though even if the test works, it doesn't mean the CC won't claw it back.
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Old May 28, 18, 5:59 pm
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how can you get approved for a credit card if you don't have income...?
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Old May 28, 18, 6:18 pm
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The BT card will want you to start paying it off before the bonds mature... so you will have to float the minimum payments out of pocket.
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Old May 29, 18, 9:53 pm
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This thread lets me drag out one of my favorite "old timer" stories. Back in the good ol' days (early 2000s), you could buy US savings bonds with credit cards directly for a while. No fees, no cash advance. Risk free, and interest rates made it worthwhile (about 5%) (plus miles on the purchase, of course). I bought a bunch (maybe $20000 worth or so eventually) that I was able to float for nearly the entire 5 year vesting period through stringing together a series of introductory 0% (no fee) balance transfer cards. I think I eventually got tired of it, and interest rates dropped, and it got harder to find new BT cards. Fun while it lasted.

But there's no way I'd go through that hassle for the 1% margins the OP is talking about.
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