As most everyone is aware now, the Federal Reserve this week dropped the Federal Funds rate by 75 basis points (0.75%). This is great for borrowers, but not so great for savers. Several online banks have already dropped their high yield online savings accounts drastically in response to the cut. This is on top of cuts last year.
One advanced cheap bastard technique this hurts is what is referred to in many circles as the “App-O-Rama”. This is the practice of investing money from promotional balance transfer offers on credit card borrowed at a low interest rate in high-yield savings accounts at a higher rate. It works great when you can take a 0% APR offer and invest it in an insured account at 6% APY as was possible this time last year.
However, now that most accounts have dropped below the 5% APY threshold and many below 4% APY, the app-o-rama is becoming less and less worthwhile. Couple that with many credit card companies removing maximum caps on balance transfer fees and the technique becomes minimally profitable, if at all. It is an even less appealing proposition when you consider the hit your credit score would likely hit from conducting an app-o-rama.
So what is a saver to do in an environment where interest rates are headed south? It isn’t really profitable to play the app-o-rama game anymore. I’ll probably pay off my outstanding balance transfers as they become due and get out of the game. As for my excess cash that isn’t from balance transfers, I’ll probably start aggressively paying down the mortgage on the house. Hoarding cash earning 4% APY or less isn’t really worthwhile when you are paying 5.375% on a mortgage. Since I won’t be spending as much time managing the app-o-rama game, maybe I’ll have more time to tackle my financial to-do list.
there is this great site where they talk all about App-O-Rama.