Upfront Rewards Visa Platinum
Universal Savings Bank from Minneapolis has a unique credit card offer: it gives you a laptop upfront if you agree to transfer and keep some balance. Specifically, one can choose to receive IBM ThinkPad R40e, Dell Inspiron 1100 or HP nx9010 if he/she agrees to make a balance transfer of $5,000 to the new card, and keep a balance of $3,500 for at least 18 months.
These computers, with retail price of $750 to $900, make this offer a good value for those who are in the process of buying a laptop now. A quick financial analysis:
1) The card is currently offering 9.99% purchase and balance transfer APR.
2) For the additional $3,500 cash flow, one can effectively invest in Money Market accounts for APR of 2.15% (that's the rate from VirtualBank eMoney account. If you want to try out VirtualBank, send me a mail and you are entitled to $20 bonus.)
3) The interest rate gap is 9.99% - 2.15% = 7.84% (yes, interest rate can go up in the 18 months ahead, but we can expect the saving rate to follow suit too.)
4) So, the cost of having the $3,500 required balance to sit in the account for 18 month is: $3,500 * 7.84% * 18/12 = $411.6.
5) Adding some miscellaeous expenses like some interest charge for the original $5,000 balance transfer and the fact that one needs to keep a bit higher balance than $3,500 to make sure one's balanace is still above $3,500 after the monthly minimal payment, the cost to customer of this offer is around $425.
6) So, by pure calculation, if one can keep good discipline (transfer and keep just the minimal balance required, reinvest the money, do not use this card for purchase), then one can essentially purchase a $750 - $900 laptop with $425.
Another note: if you don't have $5,000 to transfer, you can make a $2,500 cash advance. However, beware that cash advance APR for the card is 19.99% which will make the offer less attractive.
I am quite sure the bank can buy the computers much cheaper, may be in the range of $650 or so, so if the offer can attract someone with high balance and continue to spend using the card, it can be a good business for the bank too. For me, as I am not in the mood for a laptop purchase (I have two laptops from my employer), I will not be able to take advantage of the deal. But if the company is willing to offer $600 upfront cash for a similar deal, I will be the first fews to try out.
Source: CardWeb
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You may want to check out the current cost of the laptop being offered against what you could purchase the same unit directly from the manufacturer. On the letter I received (1/20/06), the same Dell laptop being advertised as a $850 value, was only $538 on the Dell website (shipping included). This was using the published specification for the laptop on the bank's promo and on their web page. It's possible other items are included in the promo computer, but if they were of any real value the bank probably would have listed them on the promo.
If you factor this in, the offer becomes much less attractive. Most people probably would not invest in Money Market funds as you suggested. If you take that out of the picture, then this becomes an even worse deal. Just transferring $5000 to another card with lower interest that you can pay off faster, would be a better deal.
The only people who would benefit from this promo are those where they are paying the same (or more) interest now, have no desire (or means) to transfer to a lower interest card and would be making similar monthly payments. They could ostensibly get the computer for free.
By the way, on the promo I received, the initial 9.99% interest rate was good only until 7/31/06 at which time it will go up by 1.5%. The interest rate itself is tied to the prime rate, which is not going down the last I heard.
Thanks,
Dave Osborne
Indianapolis, IN
