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Saturday, July 12, 2008

IndyMac Bank Shut down by Government


The US Government shut down former internet darling IndyMac Bank on Friday. This mortgage provider was and aggressive mortgage lender with very low rate at one time. The also feature great savings plans with above norm returns.

This really made me re-think a lot of what I have seen on Finance Blogs regarding bank and credit card arbitrage. In the case of savings, it is chasing the highest returns, and then pulling once the bonus is paid or the offer runs out. Often you need to set up direct deposit with then to get the bonus, or follow other steps that lock you up, or at least make it a pain to switch.


Credit Card arbitrage is a bit scarier, at least to me, although many are great at it. Basically, that is signing up for every 0% transfer rate Credit Card at once then maxing them out via a transfer to a bank account, usually at a bank with better than average deals ala ETrade or others like...IndyMAC.


As long as you aren't ever one day late (which triggers the higher rate) and are very diligent, you can make good money. Consider getting three $5000 one interest no payment cards for one year (using these to show the math, but banks are running away from no payments...not too tough. You max out the $15K in credit and start to get, say 3%. You then withdraw the money and pay-off the card at the end of the year. Worst case you earned $450 (actually a bit more since it compounds at least weekly).


Hey I'll take $450 for just paying my cards on time, plus say you have good credit and get $50,000; you could make $1500+ or more.


Downside, one slip up and it can wipe out your profit with late fees and penalties. OR even worse...the bank could go out of business. Yes they are (hopefully) FDIC insured to $100k per person, but it takes the FDIC often a lot of time to process claims! Hope you didn't need that cash right now sir!


Anywho, long story longer, just be careful when you see those over-stuff return rates, risk=reward, and sometimes you do get the fuzzy end of the Lollypop.

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