The ultimate guide to stoozing

by lovemoney staff on 05 October 2012  |  22 comments
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Fancy making some easy, free money? Play this clever trick with your credit card.

Everybody loves to get something for nothing, particularly if that something is cold hard cash.

Personally I seem to now have accounts with most online bookies thanks to the brilliant deals they offer on cashback websites, offering sums like £40 cashback so long as you open a new account and bet £10. It’s a no-brainer, and my bank balance looks all the better for it.

However, there is another way to make some easy, free cash. And it’s called stoozing.

The traditional stooze

Stoozing is something we’ve written about before, and it can come in a few different shapes and sizes.

The last time that it was all the rage was a couple of years ago. The idea was to transfer your credit card debts to a balance transfer card that offered a nice long period of 0% interest. Then, instead of putting as much money as you could towards your credit bill off every month, you paid the minimum amount required, and put the rest of the money you would have paid to the credit card provider into a savings account, where it would earn you interest.

Just before the end of the 0% term, you take the money out of the savings account - which by then, would have earned you a tidy sum in interest - and use it to pay off the balance on your credit card.

Alternatively, if the credit card allowed you to transfer money to your current account, you could transfer the maximum credit limit you were allowed to, and earn interest on that sum during the 0% period on the credit card, again only making minimum payments to the credit card provider during this period.

Either strategy allowed you to earn interest on money which you had borrowed interest-free. You just had to be disciplined enough not to touch the money, and also remember to pay off the balance on the 0% credit card before the APR shot up at the end of the 0% period.

Unfortunately, credit card providers soon cottoned on to stoozing, and started charging a 3% on balance transfers and 4% on money transfers. This made the hassle of applying for cards and setting up standing orders into savings accounts much less worthwhile, as a big chunk of the net interest you'd earn would go towards paying these fees.

For example, you could try stoozing today on a top 0% balance transfer card, and putting the money you save into the Santander 123 Current Account, which pays 3% on balances over £3,000. But bear in mind the fact that, if you're a taxpayer, you’ll pay tax on that return so it may not be worth the effort.

The new stooze

However, there is a new technique for stoozing that does give you a proper return of free cash.

At this point I should emphasise that this really is only an option for people with a good credit rating, and those who have real financial discipline. It’s really not suitable for those of us who either have one or two black marks against our credit history, or who are likely to fall into bad habits.

Step one – Get a 0% card

The first thing you need for a good stooze is a credit card which offers you 0% interest on your spending for as long as possible.

Luckily, there are some cracking cards in the market at the moment which offer just that. In fact they are so good they’ll actually offer you a bonus return on your stoozing! But we’ll come to that later.

My personal favourite is the Tesco Clubcard Credit Card (essentially because I do all my shopping in Tesco), which offers a full 16 months of 0% interest on purchases.

However, there is an alternative that is just as good if you do your shopping elsewhere - the M&S Credit Card also offers interest-free borrowing for 15 months.

Step two – Start spending

Now, this isn’t your cue to go on a spending spree and max out the card in a fortnight. What you should do now is keep your spending completely as normal - but put all of your usual spending on the credit card. So for example, if you normally pay for your lunch with cash, put it on your credit card instead.

Then when you get your bill each month, only pay the minimum payment. With time, you will quickly move up towards that maximum credit limit on the card.

Step three – Time for some saving

Now, I’m not advocating building up debt on a credit card for the sake of it. Been there, done that, it’s not big or clever!

While you are making minimum payments on the credit card, you should be saving at the same time. So for example, you should put the cash you'd normally use to pay for your lunch into your savings account. The same goes for anything else you'd normally buy with cash or a debit card, but instead are using your 0% card to pay for.

I can't stress how important it is vital to make sure you don't spend this extra money you will have in your pocket. Instead, once you have paid the minimum payment on the card, that money needs to go into a decent savings account each month, so you can use it to pay off your credit card bill at the end of the 0% term.

So where should you put all this lovely interest-free money, to ensure it earns you the highest rate of interest? The obvious place to start is with an ISA. The best account that has the right set up to help you stooze is the Post Office Premier Cash ISA, which pays a rate of 3.01%.

Alternatively, if you’ve already used up your ISA allowance for the year, then put the extra cash into an easy access savings account. Probably your best option right now is to go with the Halifax Online Saver, which pays a variable rate of 2.80% AER, but comes with a 2.7% bonus so your rate is protected from plummeting too much for 12 months.

Counting your cash

Just before you come to the end of the 0% period on your card, you should use the savings in your savings account to pay off the balance of the card in full, and pocket the difference.

Obviously, the amount you make back at the end comes down to how much you end up putting aside in the savings account – it goes without saying that the more you put in and the earlier you do so, the more interest you will earn.

Here's a table showing what would happen if you normally spend about £2,500 a month, your credit limit on the 0% card is £5,000 and you take the Post Office Premier Cash ISA paying 3.01%.

*Interest is calculated daily but paid annually in this example

As the table shows, if you spend £5,000 on your 0% credit card in the first two months, put all of it into a savings account and only make the minimum payments on your credit card, you'll earn £119.80 in interest over the course of the year.

Just remember, you can only invest £5,640 in an ISA this tax year, and once you withdraw money from an ISA, you cannot replace it.

The surprise bonus

I mentioned earlier that there is an additional non-stoozing bonus to all of this. Because the two best 0% cards are from Tesco and M&S, you get an extra benefit from that spending – loyalty points!

Spending up to the credit limit will help you build up a nice stack of Clubcard points and M&S points, which can then be used to give you money off your shopping, or converted into all sorts of goodies, from M&S vouchers to Avios airmiles.

So not only do you get free cash, it can help you on your way to a free holiday too!

More: Earn £947 more from your ISA | Protect your finances against inflation

Compare credit cards at lovemoney.com