Can I Use a Promotional 0% APY Credit Card Offer as a Backdoor to Free Money?

Can I take advantage of a 0% APY offer from my credit card company to grab some free money?

That’s what a listener of the Clark Howard Podcast recently asked after proposing a clever strategy.

Can I Use a 0% APY Offer To Grab Free Money?

A 0% interest credit card offer for a promotional period typically applies to those looking to pay off debt.

Move your credit card balances to that card and you have a window of time where all of your payments get applied to the principal instead of those wallet-sucking interest payments.

But what if you get a promotional 0% offer — and you pay off your credit card balance every month? Is there a clever way for you to work this to your advantage?

A Clark listener may have figured something out on the May 25 podcast episode.

Asked Mark in North Carolina: “I have a Wells Fargo card that pays 2% back on everything. Last month, Wells Fargo sent me a message that they have given me a promotional deal of 0% interest on any purchases until May of 2024.

“I normally don’t carry a balance but this sounds like free money. So my plan is to make the minimum payment each month on my regular purchases. And the rest of what [I’d pay] to clear the balance goes into a money market fund. Then I will pay the entire balance in April of next year.

“This works out to be an interest-free loan that earns me close to 5% at current rates. What do you think?”

There are some potential pratfalls, which I’ll explain shortly. But first thing first: does Clark approve?

“If Wells Fargo wants to give away the store for nearly a year, take their free money,” Clark says.

3 Important Things To Note When Following This 0% APY Strategy

Mark stands to earn close to 7% with this strategy. He’ll get 2% cash back on every purchase he makes with his credit card. And as of now, he’ll get close to a 5% annualized return in a money market fund.

Clark anticipates that the money market fund yield will decline between now and May 2024. But that’s still a good rate of return.

Mark noted that his credit card company requires him to continue to pay the minimum required each month as he’s running a balance. But depending on just how much he loads onto his card, he could max it out prior to the end of the year.

There are a few other things he’ll want to note.

1. Eliminate Your Balance Before Starting the Promotional Period

This is a tricky one. But you’ll want to pay down your balance to $0 and get rid of any charges you made prior to the start of the promotion. Otherwise, those charges will accrue interest at the typical rate of your credit card.

“If there’s any outstanding balance prior to the beginning of the promotional period, then any minimum payments you make go to the [charges you’ve made during the 0% interest period] and not to the balance that would be carrying a very, very high interest rate,” Clark says.

2. Give Yourself a Buffer To Pay Off Your Balance

Don’t risk paying off your balance too late at the end of the promotional period. Pay it off in full weeks in advance of the end of the promo, if not a full month.

Otherwise, you run the risk of getting charged interest on the entire balance.

“Any time you’re in a same-as-cash kind of thing, a no-interest period, always put in a buffer before that period ends where you pay that balance off,” Clark says. “Don’t play cute paying it off too close to when that period expires.”

3. Consider Your Credit Utilization

Let’s say that you have two credit cards, each with a $10,000 limit.

If you run the card running the 0% APY promotion to its $10,000 limit, your credit utilization will sit at 50%. That will negatively impact your credit score in a meaningful way.

Maybe you aren’t expecting to need an auto loan or a mortgage during the next year. If so, great.

But if something comes up and you unexpectedly need to rely on your credit — especially if you’ve locked your cash into something like a one-year CD — you could move backward financially rather than forward.

Final Thoughts

Congratulations to Mark if he successfully pulls off this strategy. It’s a clever way to get a decent yield on top of his typical 2% cash back.

If you want to follow suit, just make sure that you’re paying attention. You’ll want to pay off your balance before the promotional period starts. And you need to make sure you clear the balance well before the 0% APY period concludes.