Can I Deposit a Balance Transfer Check Into My Checking Account?

Balance transfer checks are important in arbitrage.

Credit cards often offer cheap balance transfers, but if you have no credit card debt to transfer you might have another, more profitable use -- writing the check to yourself. As long as you use this in the proper manner this could be free money. On the other hand, you could find yourself in a deep financial hole.

Identification

Most credit card companies allow you to write a balance transfer check to any person or company, even yourself. When you write a balance transfer check to yourself it is called "arbitrage." Essentially, you lend your credit line to yourself. A common use of this tactic is to put the balance transfer funds, usually at zero percent interest if it is a new account, into an investment vehicle.

Benefits

Unless the checking account earns interest, you should put the funds into a savings account or other investment that guarantees a return on your investment with no risk. Putting the money in a checking account could help if you use the funds to pay off other debts -- effectively eliminating finance charges on those accounts and fees you might incur if you paid by credit card.

Risk

Writing a check to yourself with borrowed funds is a dicey proposition, because it could backfire. Any credit card balance lowers your credit score by adding debt to your profile and increasing your credit utilization rate -- the percent of your credit card limit available. If you miss a payment by 60 days, you could trigger penalty rates. A single month's finance charges on a balance of, say, $30,000 would be several hundred dollars at the normal penalty rate of 18 percent. Also, the bank might charge a fee for the balance transfer.

Tip

Always read the fine print on the new card's agreement, including the rate on purchases -- the rate on new purchases may be much higher than the rate on transfers. If there are any fees, it might not be worth the risk to write a check to yourself. Also, you should be diligent about paying back bills. Frequently missing payments probably means you are a poor choice for arbitrage. The potential damage to your score and the possibility of a higher rate on new loan in the near future, such as a mortgage, usually makes this too risky.

Warning

Stocks and other investments that could lose value are a risky move, because you might end up owing more money than what you borrowed at the end of the teaser rate. Instead, put it in accounts that always grow, such as a money market or savings account, suggests Liz Weston of MSN Money Central.

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