Using HELOC to get ING Interest

[johnm]

I saw it eluded to in another post. This seems like a loophole and I'm sure this has been discussed to death here somewhere but I couldnt find it. Is there a simple term for this?

So, I write a check to myself for 20k out of my HELOC to my checking acct. When it clears, transfer to ING. Pay HELOC bill directly out of ING when due. Bam, $70 free and clear if it accrues interest for 30 days. Checking acct will probably hold funds for a week or so though.

Any comments, ideas?

[poundwise]

Um...

Don't you pay interest on the $20K from the HELOC?

Borrowing 20K at 6% or 7% to invest it at 3% or 4% isn't a winning proposition.

Did I miss something?

[johnm]

Good question. My HELOC works like a CC in that if I pay it back before the due date, no interest. Also, "convienience checks" don't cost any extra unlike my CC.

Another note, I currently have no debt outside of my homeloan (30 yr fixed).

[jmjj215]

It'd be a fun experiment. Calculate the time lost for transfers if you're running the numbers.

[johnm]

You only pay interest on credit if you don't pay the full bill. I would be paying it in full. I can't risk this money in stocks as it is not mine and I have to pay it back at the end of the month.

[disneysteve]

Who would loan money for no interest?

Credit card companies do it every month. They do get paid by the merchants, but they don't get a penny from me. As for the HELOC, I think they depend on people keeping money out for more than a month.

OP - It sounds like a great deal to me. I would just make one suggestion. Forget ING and open an account with a bank that actually pays decent interest.

[johnm]

OP - It sounds like a great deal to me. I would just make one suggestion. Forget ING and open an account with a bank that actually pays decent interest.

like who? HSBC, EMIGRANT? It's not that big a diff + ING has been good to me for many years.

[disneysteve]

like who? HSBC, EMIGRANT? It's not that big a diff

Not that big a difference? I guess it depends on your point of view. ING is at 4.5%. The leaders are at 5.3% or more, or about 18% higher. You estimate earning $70/month with ING. That's $840/year. Raise the rate 18% and that $840 becomes $991, an extra $151. That may or may not be worth it to you, but I think it is a fair amount of money.

[jmjj215]

OP, I've been using Emigrant Direct for quite a while now and have been very happy with it.

[poundwise]

Quick note: GMAC is still at 5.30% APY and is reported by account holders to have quick and reliable transfers.

When compared to 4.50% APY and, yes, especially with the amount of money you are talking about, it certainly does make a difference.

If you don't think so, imagine if ING dropped their rate to 3.70% APY tomorrow.

That figure represents the same rate difference.


Although, I will add, even understanding about the no interest repayment of the HELOC, I don't really see the great worth of doing this. You will not be able to earn interest on the money for 30 days quite a bit less per cycle when you factor-in transfer times, payment posting, turn-around, etc., plus the fact that you'll need to be careful to make the payment on-time, every time or the whole plan goes bust.

I'm not saying it can't be done or even that it shouldn't be, just that I wouldn't. Too much hassle and potential risk for too little return IMO.

[jmjj215]

Yeah, the bad thing about this is you'd have to manually write the check, and make the transfer every time (you could automate the transfer out). I always liked the arbitrage when you could set it all on autopilot.

So taking into account you lose about 1/4 interest for txfr time, you're looking at $50/month in interest, or $600 per year. Is it worth it?

[bjl584]

If this little investment strategy works, then why stop at 20K. Why not max out and write a check for 100K or more? You could make some serious money if you keep doing this over and over again.

[jmjj215]

Maybe his limit is 20k?