The Interest Rate Arbitrage Calculator

This calculator allows you to calculate the net profit you will earn from the balance transfer game, a complement to the article The App-O-Rama Effect: Is there really such thing as a free lunch?

Suppose your credit card company offers the following:

  • a $10,000 balance transfer at 0% APR for 12 months;
  • no balance transfer fee; and
  • repayment term of 1% per month.

In turn, you deposit that money into your bank account:

  • paying you 2% APY;
  • your interest income will be taxed at 28% (your tax bracket).

It turn out that, under optimal conditions, you will be earning a maximum profit (post tax) of $136 from this arbitrage opportunity.

 

Note: The maximum profit numbers are for reference only. They will differ depending on how soon your bank receives the deposit and starts paying you interest.