Stoozing is back. It has this week been revealed that rising interest rates mean you can get free cash out of your credit card for the first time since before the financial crisis, using a tactic called ‘stoozing’ – but you might need to act quickly to take advantage.
What is stoozing?
Before the financial crisis, a group of people used their credit cards to make themselves hundreds of pounds richer. They simply used the 0% interest introductory period on a new credit card to get their hands on some cash, then saved that cash somewhere that paid interest. The difference between what you’re paid in interest and what you’re charged by the credit card is your profit. Simple!
Turning higher interest rates into free cash
A normal 0% balance transfer credit card doesn’t deposit money in your bank account, it’s used to move debt from a different credit card. By contrast, money transfer credit cards do exactly that. Once accepted for the card, you simply nominate a current account of your choice for the money to be transferred into, then get a set period where you can pay it back with no interest charged.
But while there might not be interest charged, there is a fee.
The good news is that, currently, fees are typically 4% of the money you transfer – and that’s less than you can earn from a fixed rate bond.
At the time of writing, the best paying one-year savings bond pays 4.18% interest – that means £41.80 interest for every £1,000 you save – and a small profit on every pound you transfer to savings.
But you might need to act quickly to take advantage:
A closing window for free cash
Over the past few months, both the amount of time you get before interest is charged on a new money transfer card and the rates offered on fixed-rate bonds have been dropping: just last month the top-paying one-year savings account offered 4.33% interest, that’s now down to 4.18%. On top of that, last year you could pick up a money-transfer card offering 18 months 0% interest, while today you’ll struggle to find one offering more than 12 months.
If either of these drops much lower, you’ll end up paying more in fees than you make in interest.
James Andrews, personal finance expert explains advanced stoozing: “For people prepared to put more effort in, there are ways to make even more money before you have to pay the credit card company back.
The first is pretty simple – at the end of the 0% money transfer card’s introductory period, transfer that balance to a new 0% credit card rather than using your savings to pay it off.
There are still a few fee-free balance transfer cards on the market – with 0% periods of more than a year – letting you repeat the 0% trick for at least another 12 months.
If you can’t find a fee-free deal to sign up to, make sure you check to see if the balance transfer fee is lower than the interest rate on the savings account you’re using.
And if you’re feeling especially fancy, you could even try using a 0% purchase card to add to your savings pot.
These cards charge no interest on new purchases for a set period – currently up to two years for the best deals – and never have fees attached.
If you used them to make everyday purchases, then transfer the money you would have spent on these from your current account into a savings account, you can earn interest on this until the 0% period runs out.”
Three things to watch out for
There are three potential pitfalls that could see your perfect plan to stooze your way to free money fall apart.
The first is that, while there is no interest due on 0% cards during the introductory period – you still need to make repayments.
These can be the minimum amount each month, but won’t be nothing at all.
If you fail to make the minimum payment due, you could lose your 0% privileges as well as having a black mark placed on your credit report.
The second thing to watch out for is what happens at the end of the 0% period.
If you don’t still have the savings available to clear your balance, or can’t access it for whatever reason, then you’re left with a hefty debt that all of a sudden is building up expensive interest.
Finally, you’ll need to be careful making applications for new cards. The best cards are only available to people with an excellent credit score – and, to make matters worse, applying for, then being rejected by, a credit card actually makes it harder to get a different one.
A simple way round this is to use an eligibility checker or card matching tool to maximise your chances of being accepted first time out.