Making money by moving money – 1

Make money by moving money

Make money by moving money

Today we will see how to make $592 in 22 minutes.

I received a letter today by mail that told me about a promotion offer being run by a bank: Earn a $500 bonus by depositing $50,000 for 90 days.

Essentially – you open a savings account with this bank, transfer $50,000 to the new account, leave the money there for 90 days, and the bank gives you $500.

Although I will explain the $50,000 example today, the bank has offers for deposits starting $5,000. 

What is the ROI (Return on Investment)?


Investment is $50,000 (which will be available to withdraw later). This investment is almost free of risk – bank accounts are secured by FDIC (Government) up to $250,000. So my $50,000 is not going anywhere, it will just be lying there.

Return is $500 for the bonus and then the interest that the savings account pays – in this case the bank account pays 0.75% APR.

Make money by moving money

Make money by moving money

Please note: APR in this case is the same as interest rate. APR is a term widely used in the mortgage industry. In mortgage industry, the interest rate and APR are usually different. We know what interest rate is; APR takes into account the interest rate and other fees and charges – APR is a better measure to assess total cost of borrowing.

Interest paid by the savings account for 90 days = $50,000 * 0.75 * 90 / 365 = $92.

Total return = $500 + $92 = $592.

Return on Investment = ($592/ $50,000) * (365/90) = nearly 5% !
(I multiplied by 365 and divide by 90 to calculate annualized returns)

5% is a damn neat return in a risk-free environment. You risk $592 return only if the bank goes bankrupt in the 90 days – well the bank has 41,000 employees and about $300 Billion in assets, so the chances of the bank going bankrupt are very less.

You lose the principal only if US (as a sovereign/ country) goes bankrupt. FDIC insurance is backed by the full faith and credit of the United States government.

So, we will call this investment risk – free (and ignore the negligible risk).

Where else can you get a 5% risk – free rate of return?

A 50 – 50 mix of Government bonds and high quality corporate bonds returned 2.64% last year. The 50% invested in non-Government is not risk free.

Make money by moving money

Make money by moving money _BIV

The only risk free lending that comes to mind is US treasury – US government is borrowing at about 1% through Treasury bonds.

 

Source of funds

Now the big question – where will this $50,000 come from? If you have cash lying idle and you have the enthusiasm to make a few extra bucks, then seize this opportunity right away.

If you have cash lying idle, then you make $592 just by making a few mouse clicks on your computer.

If you are like me and do not have cash sitting idle (always invested) – do you have access to cheap funds? For example – can you borrow on margin against securities?

Make money by moving money

Make money by moving money _Margin Rates

If you borrow at 1.37% (if you are in the $100,000+ category), then your net return is 4.8% (I rounded it to 5% earlier) – 1.37% = 3.43%

How much time and effort?

To be honest – not much.

Opening the savings account – 10 minutes.

Depositing money into the checking account – another 10 minutes.

Adding a reminder to your calendar to withdraw the money after 90 days – 1 minute

Removing the money after 90 days – 1 min

Total – 22 min

$592 in 22 min is $1,600 an hour.

Conclusion

I wrote this post today for 2 reasons:

  1. If you think the money ($592) is worth given the administrative trouble, then go ahead and open the account. We do not want to leave free money on the table.
  2. Second and more importantly – I am trying to teach how people on ‘Wall Street’ think, how I compare return on investments to cost of funds (5% and 1.37% in our example). If you also keep reading my posts, soon enough you will become like me.

Becoming like me means all the best practices in the world of money become a part of your personality – and you scan through large amounts of data quickly to come up with meaningful analysis. 

UPDATE – 6/17/2016: Here is an actual screenshot for someone who transferred $50,000, waited for 3 months, withdrew the $50,000, and received the $500 bonus. Neat.

21 thoughts on “Making money by moving money – 1

    • Hi Deli,

      Please post them where ever it is convenient for you – perhaps on the latest post of the blog. I will share my views even if the question is totally unrelated to the post.

      Best,
      Bobby

  1. Does opening a savings account for 90 days affect the credit score?
    What if someone has $100k, and they avail multiple offers, is opening multiple bank accounts advisable?

    • No, opening (or closing) a savings account (for any number of days) does not affect the credit score.

      Some activity of Savings account/ Checking accounts can go on what is called a ‘ChexSystems report’ – but there too it’s not the opening and closing of accounts, it is mostly unpaid fee to the banks. For most people, the ChexSystems report is blank – mine is blank, I checked last year.

      It is free to get a copy once every 12 months, you cannot view it online, you can request a copy online and it will come by mail.

      Here is the menu option from their website:

      To answer the second question: There is a limit of one bonus amount per person – so you cannot split $100k into 2 accounts to get 2 bonuses (unless you really really trust someone in the family with whom you can open a second joint account with their name being the primary account holder).

  2. Bobby hello! Im back for some advice!

    Ok. So, I’ve received a similar offer to what you have above, except only 15,000 is needed for the same $500.
    Details: 1. The bonus for signing is actually split between a savings and checking acount.
    2. The APY is not nearly as attractive at only 0.01% (Which if I do the math as you did above then that equals only an additional 0.36cents?? 😛 (Is that right!?! please check my math)))
    3. The account needs to stay open a minimun of 6 months or the bonus will be revoked.
    4. A minium balance will need to be maintained for the remainder of the period after the 90days until one would be able to close the account. Split in some combination of saving+checking or a monthly account balance will be imposed upon checking $12 and savings $5. The minimum combination appears to be about $1700 for the remaining 90 days.

    I’ve got that 15,000 ready to be transfered tomorrow if necessary. But there are two things, I have been thinking about investing into other avenues. You mention securities above and I like this idea because it appears my money would be working twice so to speak. Even if that would put me in the higher borrowing range of 1.87% in this instance, it still would be a good return. The offer expires in a month from now, so I have some time to learn about securities. So my biggest question would be to your right now would be where would be, what can you teach me about securities and where/what literature would you recommend I read up on before I start just doing random google searches?

    Thank you,

    • Hey!

      $500 by making a deposit of $15,000 is awesome.

      The difference between 90 days and 6 months is not clear from your comment – you say: the account needs to be open 6 months but you also say “remainder period after 90 days” and you also talk about $1,700 -> So initial deposit of $15,000 needs to be made but all but $1,700 can be withdrawn after 90 days? If you can share a weblink or a picture that will be ideal.

      0.01% APY means you will get $15,000 * 0.01/ 100 = $1.5 per year interest -> 75 cents for 6 months.

      1.87% interest comes from borrowing on margin. Borrowing on margin is risky – please search for ‘margin’ using the search box on this website and you will find my detailed comments about why margin is risky. Since you do not have a lot of experience with stocks right now, I would advise you against using margin (yet). I promise we will eventually get there.

      Regarding a choice between stocks and this bonus offer – I would begin by thinking about your total ‘portfolio’ – you say you have $15,000 readily available but is that all the money you have or there is another 10k or 100k lying in a checking account or a saving account?

      If you have say 50k, then you can do both – invest in stocks and make use of this offer.

      If you have only 15k, then $500 return in 6 months is 7% guaranteed – I would take that as opposed to the stock market.

      But over a medium term, I will encourage you to learn about stocks – once you have made up your mind to save, the most important thing is asset allocation. Search for asset allocation on this website and come back to me with questions.

      • Bobby thanks for the quick response! I actually got up this am thinking I’d add a few comments and I see I’ve already got a response.

        Sorry about the confusion. The 15,000 needs to be in the account for 90 days. (wow! nice….) The account has to stay open for six months after the day of opening or the bonus is revoked. Some balance will need stay on the account to keep the monthly fees at bay, so at the 90day mark I can withdraw 13,300 of the 15,500.

        Yes, you are right. I have been thinking about asset allocation. After I slept on it, I was thinking I really dont NEED to first invest in securities, borrow, then invest into this account. It is just adding additional risk (being a novice investor) when the return is already quite nice. But it is very much an option I would like to learn about because I too, do not want my money just sitting (like it is now), and I’d like to keep some liquidity in the event something like this comes up in the future.
        I do have other funds I can use for other investments. So for the time being, I’ll take this offer because it really is the safest investment for a beginner. 😛 And i’ll do some more reading…

        Thanks for your thoughts!

        • Your return from this investment is 12.37% – which is AWESOME.

          You invest 15k on 2/1, withdraw 13.3k after 90 days, and withdraw 2,200 (not 1,700 like you mentioned) after another 90 days.

          2/1/2016 (15,000)
          5/1/2016 13,300
          7/30/2016 2,200 12.37%

          Which bank is this? I know Chase had something similar last year. Is there a weblink to apply? Please share so that others can also benefit 🙂

          • Hello again!

            I thought I left a post off my phone a day ago, but looks like it must not have gone through. The offer was with Chase, but it looks like they were sending offers directly to card holders’ emails. The promotion gives a coupon code with instruction to take it in to your local Chase branch, but they dont attach a link to a site with the promotion. But I did do a quick search online, and it looks like if you search for Chase promotions specifically, you can find several sites with all the details, and it looks as though some also offer the coupon code as well (if that is legit or not, I cant say). When I searched I also found several offeres not only from Chase, but several other well known names as well. So if someone is interested in changing banks and gaining some extra earnings on their money, there doesnt seem to be a lack of offers out there.

          • Morning,

            Yes, actually I had planned on that. I see there is also a string of comments as well I was hoping to read through as well. Also have several q’s regarding P2P after I read your post about it. I had plunked a chunk into LendingClub about 3yrs ago, but really havnt done much with it since. But i’ll post in the appropriate blog to try to be organized about it. 🙂

  3. I’m very sorry this comment of mine is off topic.
    I sure could use your advice on a business matter.
    I have aquired 10 credit cards and I want to someday work for myself. I just don’t know the best avenue to make the most return on investment.
    I trust everything I have ever read from you Bobby.
    If you could share some of your experience with me, it would be much appreciated.

    Please and Thank you

    Sincerely,
    Steven

    • Steven – you do not have to be sorry. There can never be enough posts to cover every possible topic that exists. So anyone is welcome to leave a comment with anywhere on the blog, and I am happy to discuss.

      Now coming to your question “I have acquired 10 credit cards and I want to someday work for myself. I just don’t know the best avenue to make the most return on investment.”

      Since you have shown a lot of respect and appreciation for my wisdom (here and on Facebook), I will take the liberty of being direct with you: You are thinking about things the wrong way.

      1 – There is a big difference between the line of credit I was talking about and credit card debt. I will almost always advise not to start a business using credit card debt. Average interest on credit card debt is 15%. And there is no sure way of making more than 15% on a business that you plan to start.

      Credit Card Interst Rates

      I repeat – there is no sure way of making more than 15% on a business that you plan to start.

      I do not need to explain what happens when you pay 15% and make 5%.

      The most risk free return that one can make is on “US treasury” – this is where you lend money to US Government and the rate for 10 years is not even 2%.

      10 year treasury-rate

      2 – “Best avenue to make the most ROI”: that is a valid and invalid goal at the same time. Many people are driven to do things for the financial return BUT the chances of success would be far better if you think along the following lines: Money is a by product of success.

      Two points I would strongly encourage you to consider:

      A. Your skill set – What do you know? What is your expertise? What can you do better/ differently than others?

      B. Market need – “What customer problem are you solving?” Why will anyone (individual/ corporation) pay you money? How are you making their lives easier? Are you providing them with a product/ service that does not exist? Or are you providing them something in a better (or cheaper) fashion?

      Once these two are in place, then only should you worry about financing (and financing through credit card debt will still a bad idea).

  4. Hi Bobby

    First I think this site is awesome, and super informative, thank you

    My question is I have about $55,000 cash sitting in an account, im not sure what do with the funds. I own a townhouse and ive considered investing money into a property but I live in Vancouver, Canada which means $55K wont get you far at all. I read a lot of your articles on the stock market, lending club and fundrise. Im 34 years old, and no children at the moment, what direction should I go to, to make my money work for me? and how would I diversify my portfolio?

    thank you
    Rose

    • Hi Rose,

      Thank you for your kind words of appreciation. Whenever I hear such positive feedback, I get inspired to write more.

      You can actually buy a property with $55 cash in Vancouver – if you take a mortgage. Though at this point, I would not recommend that you do so (Assuming you do not have any other investments at the moment).

      Here is what you should do in my opinion:
      1. If you have any schemes going on for opening a new checking account for 3 months with $55k deposit, then make use of those.
      2. In these 3 months, educate yourself about the stock market, learn about ETFs, learn about expense ratios, learn about asset allocation – I will have covered all of these in the coming 3 months.
      3. I would also encourage you to share what is your monthly budget like? How much do you expect to earn each month in 2016? How much are you likely to save? How ‘stable’ is your job/ income? That will also determine whether you invest all the $55k at the end of 3 months or stick to DCA (Dollar Cost Averaging – See dictionary for definitions).

      Here are some links to make you started with diversification: Risk vs Number of Stocks

      My favorite: Diversification – another visual I created to drive home the message

  5. Howdy would you mind letting me know which hosting company you’re utilizing?
    I’ve loaded your blog in 3 different web browsers and I must say this blog loads a lot faster then most.
    Can you suggest a good web hosting provider at a reasonable price?
    Thanks, I appreciate it!

    • I am glad that you are having a positive experience with my blog speed.

      It is not the hosting provider that does the magic, it is a Cache plugin. There are several good ones, I am using ‘W3 Total Cache’.

      Good luck

Leave a Reply

Your email address will not be published. Required fields are marked *