According to Bloomberg, Chase will up their balance transfer fee to 5% and with Advanta shutting down their credit card division and banks continuing to cut credit lines, it looks like credit card arbitrage is effectively dead and I suspected as much back in October 2008 but was hoping for a turn around.

The math simply doesn’t work at 5% for any type of arbitrage.   I generally borrow in 25k blocks and generally did about 50k at a time and at 5% balance transfer fee we’re talking about $1,250 in balance transfer fees per 25k!    The math could potentially work if the terms were for 12 months or longer  at zero percent and it were possible to find an investment with 7% or higher return but that’s asking a lot during these turbulent times and most balance transfer offers are for 1.99% with 5% balance transfer for SIX months!

I’m guessing other banks will soon follow suit and up their balance transfer fees.  I think Bank of America recently raised theirs from 3% to 4% for all balance transfers.

I feel sorry for small businesses that use this tactic to float their payables while they wait for payments from customers and I can only surmise that it’s going to kill a good percentage of small business owners.   This is one of those “unintended consequences” of re-regulating the banking sector but I don’t think there was much of a choice.

I’m feeling a bit nostalgic.  For almost a decade I borrowed hundreds of thousands of dollars and arbitraged my way into some quick cash over the years and that’s all gone now.