Credit Card Arbitrage I – How Does it Work?

This is an article I first wrote back in 2007, but reposted due to changes in the financial landscape.  You can now use this strategy with the TFSA to avoid paying any tax on the interest earned.

Credit card arbitrage seems to be a popular strategy to make a few bucks in the personal finance blog world.  I’ve personally never done it myself, but the concept is simple enough for me to explain it and give my opinion on whether it’s worth the fuss.

What is Credit Card Arbitrage?

Credit card arbitrage is where you take a low rate balance transfer promo offer from a credit card company and invest it in something that will hopefully give you a higher return.

How Does it Work?

The beauty of this arbitrage is the simplicity.

  1. Apply for the credit card offering the 0% balance transfer/cash advance. (Update: July 2013 – MBNA is offering 0% for 12 months with no annual fee)
  2. Once approved, write a credit card cheque to yourself and deposit it into a TFSA high interest rate savings account or GIC.
  3. Before the balance transfer offer expires, pay back the credit card in full.
  4. Note, NEVER make any purchases with the credit card as they will charge you with regular interest.


In order for it to be called arbitrage, you need to make a profit from the deal.  However, in my opinion, guaranteed profit is the recommended route to take.

Here are some options:

  1. Place the cash in a TFSA, either a highest interest rate account or GIC.  Note the TFSA contribution rules when repaying the credit card.
  2. Place it in a taxable high interest savings account or GIC.
  3. You could use the money as an interest free RRSP loan.  The only issue being that you will have to make up the difference between what you owe and what you get on your tax return.  Even so, your tax return will probably not get to you in time to pay back the balance, so you would have to ensure you have cash on hand to pay back the loan in full.
  4. If you have a used car purchase coming up, and plan to get short term financing (1 yr or less), then using a 0% card may make sense.
  5. Although the stock market may be an option, placing the money into the stock market for 1 year is far too risky as capital preservation is high priority in this strategy.

Note: As of August 2011, check out the smaller online banks like Outlook Financial or Achieva for the best TFSA rates.  For more ideas, check out my high interest rate TFSA article.


  • If the money is placed in a taxable account, interest income is taxed 100% at your marginal rate.  For more info read my article about how Canadian investment taxation works.  So if your marginal rate is 40%, then 40% of your interest income/profit will be taken by the government at the end of the tax year.
  • The second biggest drawback of this strategy is the potential draw down of your credit score.  If you borrow the maximum balance on your credit card and keep the balance for a period of time, your credit score can be affected.  The solution?  Only borrow half of your credit limit.
  • If you withdraw from a TFSA to pay back the card, you cannot recontribute the same amount until the new Calendar year.

What’s the next step?  Check out  Credit Card Arbitrage II – An Analysis, I will get into the offers available to Canadians, some number crunching and final conclusions.  Stay tuned!

Welcome StumbleUpon Visitor! If you enjoyed this article, please take a second of your time to give it a “thumbs up”. Thanks!

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in


FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments
Chain Chinapen
8 years ago

can you do this in the USA?

Alain Chiasson
9 years ago

I got the 10 month offer from MBNA – balance transfers. There is a fee of 1% to do the balance transfer, which needs to be taken into consideration.

10 years ago

@Jungle: are you going to be paying tax on those dividends?

MY way of thinking around these 0% CC’s is to “arbitrage” inflation instead of trying to eke out a one-digit return in a dicey stock market. REAL inflation is well above 10%, so I buy goods/hard assets which will cost after the 12-15 month period of the offer expires.

But each to their own.

10 years ago

We just got our third 0% credit card for 15 months. We put the whole thing on the mortgage with a 5.14 interest rate, then reborrowed on the heloc to buy stocks paying dividends around 5%.

10 years ago

I have had a MBNA Platinum card for a couple years now.
I have maxed out the credit limit using their 0% rates on two separate occasions in a semi-arbitrage manner.
I bought silver bullion @$20 and $31, and sold both positions at @$48.

The first 0% offer was 12 months, the second was for 14 months.
(The offers being sent to me currently are now up to 3%!)

My total “arbitrage” return is 97% — tax-free.

Keep things SIMPLE!

10 years ago

@Frugal Trader Have you done this with the MBNA card? May I ask how much you borrowed and what rate you received for your TFSA? How much income was generated?

The Wealthy Canadian
10 years ago

Great post!

I’ve had 3 MBNA card and used them to my advantage on a few occasions, but have since closed them down. Used properly, they’re great!

I don’t want to sound like a party pooper, but you may have heard the recent news of TD buying Bank of America’s Canadian credit card assets right? Well that’s the MBNA cards.

What’s worse, is that one of the TD executives were interviewed on BNN the other day, and he basically said that they will be “rolling out” these promotional cards over the course of the next 12 to 16 months.

So take advantage of these promotions while you still can!

Just when you think there’s a nice, low-interest introductory rate product for Canadians to take advantage of, we see it being taken away in exchange for a more conservative credit card arrangement for customers. I suppose we can’t expect anything less given Canada’s financial institutions having more conservative approach to things.

I used to really enjoy reading some of the credit card arbitrage stories at My Dollar Plan’s blog, even though they were tailored mainly to American consumers. If Canadians had half of the credit card promotions that our friends south of the border were able to avail of, some of us, like Frugal Trader would certainly be reaping the benefits!

Nice post! BTW – I’m officially tied as your top commentator. Next week’s roundup? :)