**Nearly** Risk Free Way of Making Free Money

[GlockSpock]

 

I myself would consider it completely risk free, as long as you are disciplined and the US Government still exists.

What you will need:

• Unbreakable Discipline
• A Budget (I recommend YNAB)
• A TreasuryDirect Account
• An Existing Income
• Existing Living Expenses
• Good Credit and New Credit Card

In a nutshell, I’ll explain what we are doing. We are buying Series I Savings Bonds from the Treasury. If you have $10,000 sitting aside for investment purposes only (or $20,000 if married), I’ll keep this short. You can buy $10,000 per person per year of Series I Savings Bonds. Done!

However, I know there are many very responsible people that do not yet have $10,000 sitting aside for investment purposes. This is for whom this is for. This is a **nearly** risk free way to leverage a new credit card and make some interest off doing so.

Let me first describe what Series I Savings Bonds are. They are a Savings Bond sold by the Treasury to hedge against inflation. They are greatly described in this article. I’ll make a few remarks here:

• They have to be held a minimum of 12 months
• If redeemed in the first five years, your earned interest in reduced by 3 months
• Their Composite Rate is adjusted twice a year (November and May)
• The Composite Rate is calculated by a fixed rate (fixed when the Bond is issued) and the Semiannual Inflation Rate
• The current rate is 9.62%

The exact formula for the Composite Rate is:

[fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)] = Composite Rate

The current fixed rate for Bonds being issued is 0%. Since the fixed rate is 0%, the formula looks like this:

0% + (2 x 4.81%) + (0 x 4.81%) = 9.62%

Although these Bonds can be held for 30 years if desired, if inflation is nonexistent then the rate of return will be 0% as the fixed rate is also 0%.

Bonds purchased through the rest of the month of October will have the 9.62% rate for six months, then at that point the rate will adjust to whatever the rate set in November 2022. Every six months, the rate will keep adjusting. If inflation is high the rate will be high, if inflation is 0% the rate will be 0%. However, the purchase amount will never go down, the only way you could theoretically lose money is if somehow the Treasury defaulted on these Bonds. If that happens, I’m of the opinion your cash money would be worthless anyways and you should have bought gold, silver, or lead.

Now, let us consider a budget. I reconcile all my accounts to the penny, including cash, nearly everyday. YNAB allows me to do this easily and is essentially the “Envelope Method” in digital form. You get paid, you put the money into budget categories, when you spend the money shifts from the categories. This is where a function of this whole entire idea is made very easy. If you use a credit card for spending, the dollar amount budgeted for and spent gets moved from a specific budget category into a specific credit card category reserved for making your credit card payment. It is very easy to shift this reservation for payments into another category, such as one for Series I Bonds. Here is an example of what I’m describing:

You get paid $100.00. You budget this money into the “Electric Bill” category. You use your credit card to pay the $100.00 Electric Bill. The $100.00 value gets moved from “Electric Bill” to  “Credit Card Payments”. You manually move the $100.00 from “Credit Card Payments” to “Series I Savings Bonds”. Then you purchase $100.00 in Series I Savings Bonds and the budgeted amount shifts from $100.00 to $0.00. This is all very important, as it forces us to only carry debt on the credit card that we have backed by buying Savings Bonds.

The only other piece of the puzzle is having a new credit card with a 0% introductory rate for about 15 months (or more). Any card that meets those criteria would work, but I have a few favored:

Chase Freedom Unlimited (1.5% Unlimited Cash Back, $200 Bonus, 0% Interest for 15 Months)

Chase Freedom Flex (5% Rotating Cash Back, $200 Bonus, 0% Interest for 15 Months)

Discipline is required here. If you open a new credit card and buy things that you normally would not have bought, that is living outside your means and you will not come out ahead by doing any of this. If you try this method and only spend money that you would have spent irregardless, that is how you can come out ahead here. Only charge things like utilities, gas, insurance, cable, internet, property taxes, etc. Ultimately, you are putting your living expenses on a card that doesn’t have to be paid back for 15 months. You are taking the cash that you would have used to pay these bills and buying Bonds that have a guaranteed return. Then you can redeem the Bonds in 12-15 months and pay off the credit card, then keep the extra for yourself.

How much you make is dependent on how many bonds you buy and what the rate does in November. I’ll make a “worse case” scenario here:

$10,000 purchased at the 9.62% rate (you can think of it as 6 months of 9.62% is half that at 4.81%) = $481.00

Chase Freedom Bonus = $200.00

1.5% Cash Back on $10,000 = $150.00

That’s $831.00 minimum, and that’s the worse case scenario of the Composite Rate going to 0% in November. If it were to stay in the 9.62% range, that’d be another profit of $481 over those remaining 6 months.

Worse case, $10,000 nets $831, or 8.31% for a 12 month investment. If the rates "stay the same", you'd be looking at roughly net $1,312 or 13.12% for a 12 month investment. These percentages include the credit card bonuses and cashback.

Tips and Tricks:

I like buying the Bonds in $100.00 increments. It may be more trouble long term but it will also make redeeming them to exact amounts much easier. For example, if you charge $10,000 to the credit card and buy in $10,000, that’s what you’ll have to redeem. But if you buy in $100.00 increments, you can redeem them at $100.00 + whatever earned interest. So if over the next 15 months you make the minimum payment (or more) towards the credit card, you may only owe $9,000 in 15 months. In this case, you could redeem roughly 90 (actual number would be less, because of the earned interest) to pay off the credit card in full. Then you’d have 10 Bonds still earning interest if the rate stays high. Since those all would have been held for at least 12 months, they are very liquid and could almost be treated as a savings account, emergency fund, etc.

After fully reaching your $10,000 spent, money redirected, and Bonds purchased, lock the credit card online and destroy the physical card. Don’t use it for anything else. You do not want to spend more than you can pay back in the 15 months.

Use something like Apple or Google Calendar to set reminders in the future to pay this off. You do not want to setup auto-pay on the credit card for the minimum payments and then "sleep" past the introductory period.

Risks:

Do not purchase anything that you normally wouldn’t have purchased. Doing so means you are generating debt without increasing assets. A $2,000 MacBook Pro may sound nice, but if you cannot back the $2,000 purchase by redirecting the cash to buying Bonds, you are truly just adding a $2,000 decrease to your Net Worth. If you can back the purchase by buying $2,000 in Bonds, your Net Worth actually stays the same as if you had paid cash for the purchase.

Carrying $10,000 in credit card debt will lower your Credit Scores. This may or may not be an issue. If you don’t plan on utilizing a high Credit Score to get a great rate for a house or other important loan then I wouldn’t worry about it.

If in November the rate stays high (I’m going to consider this anything of about 5% or higher, not only could one continue to do this all the way through April of 2023 but your $10,000/person limit also resets in January. In other words, if the rates are high, you can repeat this year by year with new credit cards.

Sidenotes:

This isn’t for everyone, only those disciplined enough to dig deep into the details and make it work.

I love doing “stuff like this”. It drives many people crazy as “it isn’t worth it”. I disagree and also love doing “stuff like this”.

Look, be careful. If you somehow try this and screw it up, it isn't my fault. On that note, there is also a possibility that I missed something big and it may not workout for me either. Do your own homework and figure out if this is right for you. If you screw it up, it isn't my fault. If you see something that I don't, let me know!

Many of the above links are affiliate links and I may receive monetary benefit if any of the services are subscribed to using those links.

[MacGyver]

Everybody needs a hobby.

Making some money on the side is a hobby. 

[gregintenn]

Not life changing, or worth the effort in my opinion, but if you enjoy doing it, I can’t shoot any holes in your idea.

[billyblazes]

A thread on another forum I'm on where a lot of financially savvy folks are discussing this.  Maybe some good reading if one is considering jumping in.

https://www.early-retirement.org/forums/f28/the-i-bond-thread-113668.html

[peejman]

I know a few folks who've take money from home equity loans for things like this. If the rate and fees on the loan are less than the expected return and taxes, that's a net positive. 

[gregintenn]

Another nearly risk free way of making money….a j-o-b!!!

[GlockSpock]

27 minutes ago, gregintenn said:

Another nearly risk free way of making money….a j-o-b!!!

Huh. This literally never occurred to me as an option. I guess I’ve been doing this all wrong. 

[Sleep profit]

51 minutes ago, gregintenn said:

Another nearly risk free way of making money….a j-o-b!!!

Let’s not resort to vulgar language lol