Sometimes it is possible to beat the system. Our guide explains what 'stoozing' is and how you can use it to make money on your credit card.
You stooze, you lose...
Disclaimer: While 'Stoozing' may work in theory, we make no guarantees that it works, nor do we advocate the process. It's simply an interesting academic exercise to explore how it may be accomplished with financial products currently available in Australia. If you intend to attempt this process, it's important you fully read and understand the terms and conditions of all credit cards and savings accounts you're using.
Stoozing is the process of taking money from a low-interest credit card (or, more commonly, a credit card with a low introductory balance transfer rate) and putting it into a higher interest savings account. Because the interest rate on the savings account is higher than the interest rate of the credit card, it is possible to make a profit.
The term originated on the Motley Fool UK message forums in 2004 where a contributor, Stooz, had begun earning money using the scheme.
So how does it work in practice? Let's look at it step-by-step with an example:
1. Bob opens a high interest savings account.
The choice of savings account will depend on the interest rate offered (the higher the better). For our example, Bob will be using the ANZ SmartyPig account, which earns 4.00% per annum.
2. Bob gets any credit card and does a cash advance for the full credit limit into the savings account.
It doesn't matter which card is used for this step, although it's important to use one which only charges a flat fee for cash advances and not a percentage. It could be an existing credit card or any other card - it doesn't matter, the card is closed in the next step.
The amount transferred will depend on the credit limit, which will be determined by the bank depending on your income, assets and credit history. For this example, we'll assume Bob was given a credit limit of $10,000 and has transferred the full amount.
Ordinarily, a cash advance of the full credit limit is a bad idea. Cash advances aren't subject to any interest free periods, the interest rate is usually very high and the bank can charge an additional fee which may be a flat rate or a percentage of the balance transfer. For example, a 3% fee for a cash advance of $10,000 will be $300.
3. Bob gets a credit card offering a low introductory balance transfer rate and transfers the balance from his old credit card.
The choice of card here is important. The card should have a minimal annual fee and a very low introductory rate. For our example, we'll assume Bob has used the Citibank Clear Platinum, which offers a 0% balance transfer rate for 6 months and has an $85 annual fee.
At this point, Bob's original credit card is closed, he owes $10,000 on his new credit card and is being charged 0% interest per month. He also has $10,000 in a savings account earning 4.00% interest per year (or 0.33% per month).
The exact calculations can get a little complicated. Bob will be required to pay a minimum of 2% of his credit card balance each month, so the money in his savings account will reduce over time. He also has to pay the $85 annual fee upfront.
Bob's balance in each of his accounts, month by month, is as follows:
| Month |
Credit Card |
Savings Account |
| 0 |
$-10,085.00 |
$10,000 |
| 1 |
$-9,883.30 |
$9,864.30 |
| 2 |
$-9,685.64 |
$9,699.52 |
| 3 |
$-9,491.93 |
$9,538.14 |
| 4 |
$-9,302.09 |
$9,380.09 |
| 5 |
$-9,116.05 |
$9,225.32 |
| 6 |
$-8,933.73 |
$9,073.75 |
4. Bob pays the credit card balance in full
After paying the credit card, Bob is left with a surplus of $140.02.
Obviously, Bob will not retire comfortably on this income. Like most businesses, to earn a lot of money, it is necessary to have a lot of initial capital. There are now professional 'stoozers'. They operate stoozing (I can't believe I'm beginning to use that as a proper verb) at a very large scale. They have balances from multiple credit cards all sitting in a 'stooz pot' - a single, large savings account generating maximum interest. Using the example above, to earn a wage of $1,000 per week they would need to begin with $1.7 million.
