In the US, 0% credit cards can be used to build savings — MarketWatch
In the United States, promotional credit cards with a zero interest rate can make it possible to direct one’s own funds into high-yield savings accounts or US Treasury securities while paying everyday expenses with the card. As MarketWatch writes, some banks offer new customers 0% APR on purchases for up to 21 months. In the example cited in the column, 21-month Treasury securities yield 4.7% per year.
How the approach works
The introductory rate on such cards applies to new purchases, not to buying bonds or directly funding a savings account. The column’s author suggests paying for most current expenses with the card during the promotional period, while setting aside or investing in savings instruments the money that would normally have been spent on those needs.
According to MarketWatch’s calculation, if an additional $1,000 is directed to savings each month for a year in this way, slightly more than $700 in additional income can be earned by the end of the 21-month promotional period. The publication notes that such offers are available, in particular, at Bank of America, U.S. Bank, and Wells Fargo.
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Terms and risks
Approval for a card with a 0% rate usually requires a good or very good credit history. Those who are already paying high interest on existing credit card debt may not meet these criteria.
After the promotional period ends, the interest rate on the outstanding balance may exceed 25% per year. The cardholder must make the minimum payment every month: missing a payment deadline may result in the loss of the promotional offer. These terms are also intended for new customers, and a bank may not consider a person to be a new customer if they had an account at that institution in the recent past.
A zero rate is sometimes also offered for balance transfers from another card, although such a transaction usually carries a fee. The author also warns that additional available credit should not encourage higher spending; otherwise, the potential benefit will disappear.
