4 ways you may be leaving free money on the table

Fortune favours the frugal. Here’s how you can get free money from the bank.

You may have heard the saying that there’s no such thing as a free lunch. No one knows who coined the phrase, but it dates back to the thirties when it was common practice for saloon owners to entice customers to drink with the offer of free food.

Free food at a pub is a thing of the past, but there are still a few free meals out there.

There are four ways that I can think of getting free money from your bank:

1. ‘Cheque to Self’ and put the money in your offset account or a high interest savings account

What is a ‘Cheque to Self?’

A ‘Cheque to self’ is a feature with Citibank where you can request a cheque be made out to yourself in return for taking out a balance transfer with them. By requesting a ‘Cheque to Self’, you will receive a cheque that you don't just have to use to pay off another credit card. You can use the funds on anything - holidays, groceries, school fees etc. The cheque amount will become the balance on the credit card.

How it works

Here’s how it works. Apply for a Citibank 0% balance transfer credit card and request their ‘Cheque to Self’ option. You’ll get a cheque from the bank and then deposit the money in your offset account. Apart from the annual fee, the money from Citibank is free; while the money in your offset account helps to payoff your home loan.

At the end of the six month balance transfer period, transfer the funds from your offset account back onto the credit card. No interest is paid on the balance transfer balance and you’ve saved a little money off your mortgage.

How much could you save?

Lets assume you have a $500,000 home loan at 5% and you took out a $10,000 balance through a ‘Cheque to Self’ and deposited it into your offset account for 6 months, you could save approximately $252.62.

With a $48,000 balance at 6 months you could save $1,212.57.

What’s the catch?

  • You need to pay the minimum on the credit card to stop the account from going into arrears. You can transfer the minimum back from the offset account each month to avoid any fees;
  • You need to get a credit card with no annual fee otherwise you will lose money on the transaction; and
  • The products with the ‘Cheque to Self’ feature only allow up to 80% of the products credit limit to be used towards a ‘Cheque to Self’. Two of the products with a ‘Cheque to Self’ is the Citibank Ready Credit and the Citibank Clear Platinum Visa Card. Both of these products have a $60,000 maximum credit limit. This would mean that you could borrow up to a maximum of $48,000 with ‘Cheque to Self’.

How do I apply for a Cheque to Self?

  • If you are an existing customer, you can contact Citibank directly on 13 24 84 at any time to discuss your options with an agent who has access to your account.
  • If you are a new customer applying for a credit card that has a balance transfer offer attached to it, you may request for a cheque to be sent to you if you do not have a balance to transfer. This must be requested when you call to activate the account.
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2. Borrowing money from your home loan to put in a high interest savings account

Its rare, but in four years of running finder.com.au I have seen high interest savings accounts have a higher interest rate than some home loan rates. Its rare, but it does happen from time to time.

The difference between the two rates tends not to be much approx 0.01 - 0.05%, but it is possible. And this difference between rates is where you get your free money.

How it works

If you have equity in your home, you could transfer money from it to a new high interest savings account. Once the introductory period ends or the savings account rate changes, you could just transfer the money back onto the home loan.

There are a number of savings accounts with introductory and ongoing periods, so you can do this more than once.

How much could you save?

Lets say you borrow $10,000 and put it into your high interest savings account for four months.

Assume you are making a profit of 0.05% after paying the interest back on the money you have borrowed.

You could earn $25.03 in interest before tax.

What’s the catch?

There are a couple of catches here to watch out for:

'What is arbitrage?'

Arbitrage is the practice of capitalising on difference in price between two or more markets.

  • There are normally fees when taking out a new home loan ~$300 and this would be much more than the savings earnt of $25.03;
  • If you already have a home loan and you are just re-borrowing the money it's crucial to watch out for the interest rates changing on the savings account and home loan. If either were to move the arbitrage would end;
  • Normally high interest savings account has an introductory period where you earn bonus interest - say 4.5% for 6 months - after this period, the rates tend to decrease dramatically. It would be crucial to set reminders and be mindful of when this period ended;
  • The savings that you would earn would be taxable; and
  • Loan repayments are sometimes limited with certain mortgage products. Sometimes loans have fees or max repayment amounts. If you had an offset account you could potentially easily move the money around.
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3. Use a 0% purchases credit card and put your savings into a high interest savings account

How it works

There are a number of credit cards with a 0% introductory period on purchases in the market at the moment.

The idea behind this money marker is that you put the money you would have used to pay back the purchase amount on your credit card into a high interest savings account (HISA).

You earn interest on the money you’ve deposited into the HISA during the promotional introductory period on the credit card and at the end of the promotional period, you take the money from the HISA and pay back the credit card.

How much could you save?

There are a number of cards with an introductory rate on purchases. Let’s have a look at a card with a promotion of 0% for 6 months on purchases. For the sake of the article, let’s assume that the high interest savings account also has a bonus introductory period of six months too.

Say you make $1,000 in purchases in each month during the introductory period on the card. Assuming that there is no initial deposit into the account and a deposit of $1000 every month for six months into an account earning 4.5%, you would have deposited $6,000 and earned $56.53 in interest at the end of the introductory period.

What’s the catch?

There are a couple of catches you should be aware of.

  • At the end of the promotional period, you need to watch out for the revert rate; and
  • You will want to go for a credit card with no annual fee. Card fees will eat into your interest earnings.

Is it worth it?

People who use their cards for a cash advance shouldn’t bother pursuing this form of free money. If you use the card for a cash advance, you can say goodbye to any savings as interest is calculated from the time you make the transaction. If you get a credit card with no annual fee and you’re disciplined with your card use, why not be a little thrifty and make your money work for you? You can compare HISAs on our high interest savings account comparison page.

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4. Use a cashback savings account

How it works

Important information

This example was worked out using ING's 5% cashback. This offer may have changed since the time of writing.

This is pretty straight forward. You get cash back when you use your Orange Everyday Account to tap and go at Visa payWave terminals.

  • Use ING’s Orange Everyday Account and get 5% cashback

Hi guys. My name is Fred Schebesta. I'm here to tell you about how you can get 5% off everything you buy.

Now the other day we were sitting around in the office at Finder.com.au here and we were talking about how could you get some cash back of things. We found this product we've got on our site called the Orange Everyday Account. You can see here I've applied for it and I got the card.

One thing you want to consider is: when you apply, you can actually get a savings maximiser along with it. What you can use that for is to move your money over to get that high interest savings while your money is in your bank account and get an extra 4% on your money or whatever it may be. Then when you need to use the money, you can just instantly transfer the money over to your Orange Everyday Account.

So I found that to be a great way to save 5%. Let me know what you think in the comments below.

I recently signed up for one of the Orange Everyday Accounts and I went down to Coles to test it out. I paid for about ten dollars worth of food with my Orange Everyday Account and got about eighty cents back. You can see all this by having a look at my statement below.

Fred Schebesta's ING Orange Everyday Account Statement

How much could you save?

The cash back period with the Orange Everyday Account only lasts for six months. Assuming a modest spend of $1,000 a month for six months on the account, you could get up to $250 cash back. That’s not bad for free money.

What’s the catch?

  • You have to use Visa payWave terminals to get cash back. You can’t use Mastercard payPass;
  • It only applies to purchases under $100; and
  • The offer is only valid for the first six months after you activate your card.

Is it worth it?

The Orange Everyday Account is free to open and free to use. So any cash you get back is an instant bonus. You have to ask yourself whether the rewards are worth the approx. twenty minutes it takes to open and activate the account. Open an ING Orange Everyday Account here.

There you have it. Four ways to get free money. Do you have any other ways of making free money? Post in the Questions box below.

*Disclaimer: It is important to note this post was originally written in 2014. The offers and deals may have since changed. Always check a providers website for up-to-date offers prior to applying for a product.

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