I want to take a cash advance on my credit card and invest it in the stock market, is that a good idea?

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This question has become less common now that 0% "teaser" rates aren't landing in the mailbox every week, but it still comes up from time to time.

A few posters have described successful experiences with investing their cash advances, for example taking a 0% cash advance for 6 months and investing the proceeds in the highest-yielding 6-month CD that they can find. This type of trick doesn't have the same risk as a stock market investment, and in theory you know your profit on the day you take the cash advance. Of course, when cash advances were 0% a six-month CD didn't pay very much, but it was free money.

Skeptics point out the potential problems:

  • First of all a stock-market investment, for the short period of time that a low cash-advance interest rate typically applies, is risky. Stocks may have returned 10%-11% annually over much of their history, but along the way there were many periods with losses. If you take your cash advance during a period that the stock market takes a dive, you won't have enough cash to pay off your balance when the low interest rate expires.
  • You'll only earn the difference between the cost of borrowing, and the earnings on the invested proceeds, after paying taxes. When you add it all up this may end up being something small like 1% net, not worth the bother.
  • If you miss a payment, even just because a check is lost in the mail, your interest rate typically goes to the exorbitantly high rates credit card companies charge -- 15%, 18%, or more -- and the rate may be retroactive to the day you took out the cash advance.
  • Even if you make all your payments on time, the credit card agreement may allow the lender to re-assess your credit score while you maintain a balance, and reset your interest rate on the cash advance. This means that paying another credit card late, missing a mortgage payment, or being late on a car loan might blow up your cash-advance trick.
  • The trick is getting harder to do, because most credit card companies charge a fixed cash-advance fee (e.g. 3%, up to some dollar amount) in addition to the regular interest. This makes the true interest rate higher.
  • How much is your time worth? How much is the hassle worth? How much money, after tax, will you end up with?
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