I came up with this simple idea. What stops people from borrowing money at a particular interest rate, then reinvest sum in (most likely) a bank which offers higher rates on deposits. Bank the margin. Scale up as much as possible.I know banks do this. The thing to note is that it has to be done across international borders which opens the transaction to exchange rate risk. Hedge against exchange rate risk. There will be transaction costs, but this should become negligible as one scales up.Your thoughts?
5% return on your money, little risk
- Thread starter makroosa
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Too many risks IMO for too little return. Interest rates vary on a daily basis as do exchange rates.
Small scale investments can work and I have done so in the past. 0% credit cards (cash advance) Take as much advance cash as the credit card allows and bank it in the highest interest rate account available for the duration of the 0% offer. Even with fees you will very often come out with extra cash at the end.
Certainly no good for an income though because unless you have a huge credit line with a card company which would be very rare for an introductory offer then you only stand to bank a small amount. I only did it because I had no other use for the credit card at the time.
Small scale investments can work and I have done so in the past. 0% credit cards (cash advance) Take as much advance cash as the credit card allows and bank it in the highest interest rate account available for the duration of the 0% offer. Even with fees you will very often come out with extra cash at the end.
Certainly no good for an income though because unless you have a huge credit line with a card company which would be very rare for an introductory offer then you only stand to bank a small amount. I only did it because I had no other use for the credit card at the time.
Wilson Grant Fisk
Elite Member
- Nov 10, 2012
- 15,677
- 46,839
Great plan, where did you get the 5% and low risk from?
Banks charge higher interest rates for borrowing and pay less interest to savers, that is how they make money, or did you want to borrow money then get into Forex?
There are exceptions such as getting a low interest shot term loan and then investing in long term bonds but that ties your money up and is unlikely to give you the return you would hope.
Defon
Regular Member
- Apr 18, 2009
- 346
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I worked at a bank and it won't work like you think. It would take me about 30 mins to respond with detailed answer. But I can tell you , talk to someone that works at a bank or the industry, friend / family. They can explain.
But I like your thinking. Maybe you could buy products and do a return with the investment.
Banks now pay about 1% interested in the US... that is with $5k investment and 6+ month commitment.
Once you get into IM you will see getting a 300% ROI in 3 or 4 weeks is easy. 1000% ROI also possible. It takes more work and experience but why only make 1% or even 10% a year? That is what the working poor people do and then they complain about why the RICH are getting Richer. You can't save your way to wealth... that is a lie given to the W2 employees so they have a dream while they work on somoene else's business.
;-)
But I like your thinking. Maybe you could buy products and do a return with the investment.
Banks now pay about 1% interested in the US... that is with $5k investment and 6+ month commitment.
Once you get into IM you will see getting a 300% ROI in 3 or 4 weeks is easy. 1000% ROI also possible. It takes more work and experience but why only make 1% or even 10% a year? That is what the working poor people do and then they complain about why the RICH are getting Richer. You can't save your way to wealth... that is a lie given to the W2 employees so they have a dream while they work on somoene else's business.
;-)
Avid Learner
Regular Member
- Oct 28, 2014
- 313
- 107
There are people who play credit card shuffle to maximize the value out of points / cash back / bonus, with balance transfers, etc. Their money making comes from those adders, not from investing borrowings.
CC companies have gotten wise to this and many (most?) charge a percentage fee for balance xfers. It would be pretty hard to borrow from a CC for investment and keep a sustained balance going over a long period at interest rates that would be favorable.
Also, credit rating and history dictates the amount of credit to be extended. Might be hard to get this to scale to make substantial return. Probably nothing compared to IMing, as Defon points out.
Then there is the problem of getting the cash from the card to invest in the first place. ATM withdrawals/cheque writing (or similar) might be exempt from the intro rates, plus there may be a transaction fee along with a cap on the amount withdrawn.
As Defon rightly suggests, could use the CC to purchase products to sell, but that is an entirely different scheme and risk profile.
CC companies have gotten wise to this and many (most?) charge a percentage fee for balance xfers. It would be pretty hard to borrow from a CC for investment and keep a sustained balance going over a long period at interest rates that would be favorable.
Also, credit rating and history dictates the amount of credit to be extended. Might be hard to get this to scale to make substantial return. Probably nothing compared to IMing, as Defon points out.
Then there is the problem of getting the cash from the card to invest in the first place. ATM withdrawals/cheque writing (or similar) might be exempt from the intro rates, plus there may be a transaction fee along with a cap on the amount withdrawn.
As Defon rightly suggests, could use the CC to purchase products to sell, but that is an entirely different scheme and risk profile.
Thanks for all the replies so far, encouraging.
I actually work at a bank. I know banks lend from the international market at very low interest rates (think around 1%), hedge against exchange rate risk, convert to local currency, then lend to borrowers here at 15%+. There will be transaction costs and provision made for 3% bad loans, but still a tidy profit.
Lending from banks here cant work as savings/fixed deposit interest rates are lower than lending rates. This only works because different countries have different lending rates.
Some links:
http://data.worldbank.org/indicator/FR.INR.LEND/countries
http://www.tradingeconomics.com/country-list/interest-rate
The key risks here is exchange rate risk. That can be mitigated by hedging. the other risk of note is diversion risk. That is when funds are not used for the purpose they are meant for.
The way to make better returns (with increased risk) is to actually lend the money to businesses/salary earners. one can look at 15%+ return on funds. Fixed deposits/Bonds should give 9%+. (figures subject to negotiating power and amount)
And I agree, this is not a get rich scheme and IM will definitely make more. It is more of stable steady returns. I have some other ideas but i would prefer to hear from you how reasonable - so far - this all sounds.
Your replies and opinions are well appreciated.
I actually work at a bank. I know banks lend from the international market at very low interest rates (think around 1%), hedge against exchange rate risk, convert to local currency, then lend to borrowers here at 15%+. There will be transaction costs and provision made for 3% bad loans, but still a tidy profit.
Lending from banks here cant work as savings/fixed deposit interest rates are lower than lending rates. This only works because different countries have different lending rates.
Some links:
http://data.worldbank.org/indicator/FR.INR.LEND/countries
http://www.tradingeconomics.com/country-list/interest-rate
The key risks here is exchange rate risk. That can be mitigated by hedging. the other risk of note is diversion risk. That is when funds are not used for the purpose they are meant for.
The way to make better returns (with increased risk) is to actually lend the money to businesses/salary earners. one can look at 15%+ return on funds. Fixed deposits/Bonds should give 9%+. (figures subject to negotiating power and amount)
And I agree, this is not a get rich scheme and IM will definitely make more. It is more of stable steady returns. I have some other ideas but i would prefer to hear from you how reasonable - so far - this all sounds.
Your replies and opinions are well appreciated.
Avid Learner
Regular Member
- Oct 28, 2014
- 313
- 107
FYI...in the US, Chase Slate credit card is offering 0% APR for 15 months on balance transfers, and $0 introductory balance transfer fee. Also, it is a $0 annual fee card.
This seems to be made for exactly the OPs scenario.
This seems to be made for exactly the OPs scenario.
richestmaninbabylon
Junior Member
- Jul 26, 2014
- 128
- 55
Little risk = Little reward, to most people. Unless you are very clever, its true. But read Tony Robbins Money Master the Game and he offers up some great Ideas about how multimillionaires risked pennies to make dollars and made fortunes from little risk- big reward situations. I think it is better that playing with small % interest rates and waiting a long time.
tony_d
Elite Member
- Jun 22, 2013
- 2,673
- 3,294
That seems like a poorly considered concept.
What is the single most important thing to control (predict) in your above example?
The FX rates.
So, as long as you're making money from predicting (betting on) FX rates, why not take your capital exposure off the table and just go straight out FX trading? Your model above requires you to be right 100% of the time - so if you can indeed predict currency future values correctly 100% of the time, you would be doing a monumentally shitty job of cashing in on it if all you did was arbitrage interest rates!
What is the single most important thing to control (predict) in your above example?
The FX rates.
So, as long as you're making money from predicting (betting on) FX rates, why not take your capital exposure off the table and just go straight out FX trading? Your model above requires you to be right 100% of the time - so if you can indeed predict currency future values correctly 100% of the time, you would be doing a monumentally shitty job of cashing in on it if all you did was arbitrage interest rates!