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.
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.
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?
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.
I wrote this post today for 2 reasons:
- 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.
- 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.