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Could you benefit from credit card stoozing?

Could you benefit from credit card stoozing?

Category: Credit cards

Updated: 28/09/2017
First Published: 27/09/2017

It's always good to get something for nothing, but what if you could actually make money from it? That's exactly what some savvy borrowers are doing through a process known as 'stoozing', but how does it work, and how can you take advantage? We take a look.

What is stoozing?

Stoozing is a clever way of moving money around to benefit from high interest rates without having to lock any of your own cash away in a fixed rate savings account. It sounds impossible, but it can work: borrowers take out a 0% money transfer offer on a credit card, and use the cash to fund a high interest current account, which they can then leave untouched to benefit from a high interest rate.

As long as they pay off the credit card balance when the 0% offer ends – which they could do with the original sum they borrowed – they're left with a nice little pot of interest, without committing any of their income or savings. This means you could quite literally get something for nothing, but as with anything that sounds too good to be true, it's important to go about it the right way.

Points to remember

The first thing you need to think about is the money transfer fee. Our data shows that there aren't any cards that don't charge a fee at the moment, so this cost would need to be taken on board and compared against the potential gains of putting the money in a high interest current account.

You'll need to consider the restrictions on these accounts, too, with many coming with monthly funding requirements, fees and a maximum amount that interest can be earned on. And remember to make at least the minimum repayment on the credit card, too, otherwise the 0% interest deal could be revoked and you wouldn't have achieved a thing.

"It's no wonder that savers are curious about using a 0% credit card deal to credit their bank account so they can earn interest, but it may not be as simple as they think," said Rachel Springall, finance expert at moneyfacts.co.uk.

"A money transfer offer works like a balance transfer offer, but instead of money moving from one credit card to another, the amount borrowed is used to credit a bank account. Most money transfer offers charge a fee for borrowing, so this would need to be deducted from potential gains – and borrowers would also need to keep repaying the credit card."

Top tips to make stoozing work for you

Despite the potential drawbacks, stoozing could still be a viable way to earn a bit of extra interest in a low rate environment, but you'll need to make absolutely certain you're the right candidate for the job.

"Ideally stoozing would be most appropriate for consumers who already have savings and a decent income," explained Rachel. "This is so that they could leave the deposit untouched in a high interest current account, while also meeting any minimum funding requirements to be eligible for interest, and at the same time managing repayments on a credit card."

Sounds like you fit the bill? Check out our top tips for using 0% money transfer cards and current accounts to earn interest:

  • Before applying for a card, make sure you have a good credit history by checking your credit report to give yourself the best chance to get the best possible deal (and remember that opening a bank account and credit card leaves marks on your credit history, so don't even consider it if your score is already suffering).
  • Keep your current account in credit – some have funding requirements and need a minimum amount of active direct debits, so don't fall behind on any criteria.
  • While you can have more than one current account at any time, be mindful of how you are moving your money around, as some banks may frown upon this activity and some may even become suspicious that it's fraudulent.
  • Make sure you keep up credit card repayments – this could be as little as 1% or the outstanding balance (always check with the provider).
  • If you're looking at repaying the card debt in 12 months, make sure the deal you have has an interest-free period of this length as a bare minimum, and don't be tempted to spend more on the credit card unless you absolutely must.
  • Any personal debt, such as loans and credit cards, can count against you in terms of your credit score, so keep this in mind if you're hoping to apply for a mortgage anytime soon.
  • Card fees can eat into any 'profit' you make from stoozing, so be wary of these when looking at money transfer cards.

How much could you earn?

So, you fit the bill and have a financially savvy head on your shoulders. Just how much could you earn from stoozing?

Let's say you borrowed £2,500 on a 0% money transfer card that charges a 1.90% fee (such a deal is currently available from Virgin Money, with its 38 Month Balance Transfer Credit Card MasterCard offering 20 months of 0% money transfers with a 1.90% fee, the lowest currently on offer), resulting in a £47.50 transfer charge.

You then put the £2,500 in the Nationwide FlexDirect account and left it untouched for a year. This account offers a top in-credit interest rate of 4.89% gross (5% AER), which would result in interest of £122.25 after 12 months. This, minus the £47.50 transfer charge, gives a profit of £74.75. Not bad for nothing!

Want to give it a go? Compare the top 0% balance transfer credit cards and be on the lookout for those that come with lengthy money transfer terms – below you can see the top deals currently available – then combine one of these with one of the best high interest current accounts to see how much you can benefit.

Top 0% money transfer offers with low fees 0% Money Transfer Term Intro Fee
Virgin Money 38 Month Balance Transfer Credit Card MasterCard 0% for 20 months 1.90%
Virgin Money All Round Credit Card MasterCard 0% for 25 months 2.00%
Virgin Money Travel Credit Card MasterCard 0% for 12 months 2.00%
Virgin Money 27 Month All Round Credit Card MasterCard 0% for 27 months 2.70%
Virgin Money 36 Month Money Transfer Credit Card MasterCard 0% for 36 months 2.90%
Capital One Balance Transfer MasterCard 0% for 12 months 2.90%

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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