High-Yield Savings vs. 0% APR Financing for Large Purchases

All right, are you ready for the next question? This one’s from Cyber Tony. Good username, Cyber Tony. I thought you said “Cyber Toe” to me, and I was like, “Toe? Like the toe on your foot to knee, like your knee? Cyber Toe Knee?” It’s like the phonetic way you would think it’s Cyber. Cyber Tony. Okay, spent too much time on that. You’re welcome, Cyber Tony. I get it now. Oh wow, he got us going. Okay, keep it going, old Tony. Okay, here’s his question. He says, “Does it ever make sense to finance a large purchase at 0% APR when you have cash to pay it off right away? A common tactic I see is moving that cash to a high-yield savings account to get that extra 4 to 5% yield. This is a popular question for us lately. It’s a very popular question. Brian, do you want to take this? I mean, I’ve got some thoughts here, but I’ll start off because look, I’m one of those people. This is even in my brain right now in the fact that I make estimated tax payments every quarter to the government, and I have always told my CPA, the CPA firm that bought my tax prep still does my taxes. And I’m always like, “Look, I don’t care. I want to pay 100% of what I think my taxes are for this year, even though I could do Safe Harbor and 110% of last year. I just want to go ahead and estimate. Let’s run a tax projection. Let’s prepay it. Interest rates are high enough now that I’m actually just paying the Safe Harbor. I feel like I am naked to the world right now to the IRS because I’m hoping that when I get to April of next year, I have enough pot of money to cover everything and anything, and I’m running still projections in the background. So I’m not going to be caught completely off on this. But it is when cash is paying over 5%, it is definitely something or right around 5% that I can understand people wanting to do this Arbitrage. Now, what I would love for you to address, though, is just like we did that personal audit on Caleb, and he was out there doing Ashley Furniture. Like, what are you doing? I mean, that Arbitrage on short-term stuff just doesn’t seem like it makes a lot of sense. That’s what I was going to say. It really depends on the impact of the decision that you’re making.

So like estimated taxes, you know, those can be substantial sums of money, and you think about substantial sums of money at 5%, it’s material. It’s a material impact to someone’s financial situation. If you’re talking about a large purchase like, “Hey, I can buy my $1,500 iPhone, and I can do 0% for 12 months, and I can invest that. Like, is that worth it?” It just seems to me that the risk of, “Uh-oh, I missed a payment. Uh-oh, something glitched with my email. Uh-oh, whatever,” and then all that interest accrues, and you had to waste mental calories to try to finesse that Arbitrage situation. I don’t think there’s anything wrong with trying to do an Arbitrage, like what you said, but if it’s an immaterial, if it’s a low-impact thing, I just think, “Man, is it really worth it?” I mean, yeah, you could do it, but what are we talking about here? We talking about 40 bucks over the course of a year? It may not be worth the effort and the attention you’re putting into it. And something like, if he said, “Finance a large purchase,” I’m going to assume this is like a consumer purchase. Let’s say it is like Ashley Furniture or something like that. It’s pretty risky. If that goes bad, if something goes wrong, me, I love all the comments on that video we did. They said, “You know what you’ll do? You’ll screw up one time, and you’ll never do it again. You’ll never ever ever do it again.” I just don’t know that it’s entirely worth it, in my opinion. You said it, and that’s why we share brain materiality of the situation. Like, how big is the opportunity cost and the incremental decision, and then what is the risk that is also running in the background? And that was our point really with the Ashley Furniture was, is that all those furniture-type deals where they offer you 0%, if you could—I would love, I don’t know if it’s publicly out there, and we ought to research this because it’d be a great show topic for a Q&A intro. What percentage of like Rooms To Go and Ashley Furniture are those 0% deals actually end up collecting interest? I don’t know if that would be publicly available, but I bet it’s very lucrative. There’s a reason. I mean, there were seasons of my life where it felt like they were doing these deals for over 18 months, and you’re like, holy cow, they’re getting into years of letting people have 0%. But be careful of those Arbitrage situations because some of them can be Wile E. Coyote-type traps. And just because you watched Road Runner all your life and they blew through everything and it never caught them, there’s a lot of traps that do trigger and catch people financially. R, you say this all the time, don’t try to find complexity. Complexity will find you. And I found, like, in my personal financial situation, things just get more complicated. And the less things I have to think about, the less things I have to worry about, the better things operate. And so I would encourage you before you go into that, if you have the cash where you could just stroke a check and pay for it, I’d give some serious consideration to doing that. For more information, check out our free resources.