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.