[daveking]

After reading colourfulmoney article on leveraging TFSA with low interest credit cards, I am very interesting in applying the technique.

Basically, the idea is to borrow money for cheap (3-5% interest rate) and invest it in stocks/ETF that have higher dividend yield than the cost of borrowing.

Currently, I have Capital One prime + .9% low interest credit card giving me 3.5% for purchase and 3.5% for balance transfer. Cash advance is 19% so that is out of the question.

My question is... how to I get the money into my TSFA brokerage account?

Forgive me so being a bit naive, but I have never balance transfer from one credit card to another. (I usually don't keep a positive balance on my credit cards.)

I heard that once I balance transfer the card can not be used to make purchase. Is that true?

 

[Bullseye]

In this case, where a cash advance incurs a high interest rate, you have to use a different method to get the cash. What I've done in past is cash advance the money from a different credit card, and then balance transfer from that card to your low rate card. You'll need another card with equal limit to do this, of course. You don't need to worry about the cash advance rate on the other card, because you'll be paying it of right away anyways.

Watch out for cash advance limits, and cash advance fees, though.

This other article has some more tips and traps to watch for, if you're doing this.

http://colourfulmoney.com/?p=35

 

[archanfel]

Are you borrowing inside the TFSA or are you borrowing outside and then move the money in? I don't think you will be able to write off the interest in that case as well, right?

 

[Bullseye]

Are you borrowing inside the TFSA or are you borrowing outside and then move the money in? I don't think you will be able to write off the interest in that case as well, right?

You definitely can not write off interest used to borrow for a TFSA, just as you can't with an RRSP. That's a downside to this strategy for many, but a fairly small one when interest rates are this low. For some, interest deductibility offers no benefit anyways, as they don't have enough income to be taxed much, if at all.

 

[lb71]

Be careful with this strategy. If you invest in say a fixed term GIC and then prime rates increase, you are losing money. If you invest in high yield stocks, the reason the yields are high are because the market expects a dividend cut. So you may end up paying more in interest costs here.

Also, those types of loans with credit cards subject you to interest charges on all your purchases, so you should not use that card once you implement this strategy. Also, read the fine print for one time balance transfer charges.

The point of the TFSA is to encourage people to save their money, not to leverage.