An enterprising University of Otago student spent last
year "stoozing" - and now he's laughing all the way to the
bank. Mark Price reports on a shrewd investment scheme.
A University of Otago business student is celebrating the end
of a year in which the banks provided him with $500 of free
money.
The student, who prefers to remain anonymous, employed a
system known as "stoozing", which works in a similar way to
the international "carry trade" - where money is borrowed at
a low rate in one country and invested at a high rate in
another.
The student realised banks trying to attract students as
customers had created a similar, legal, opportunity for free
money within New Zealand.
"Stoozing" is a slang term to describe an activity where
money is borrowed at 0% interest and invested elsewhere.
Eventually, the borrowed money is repaid but the interest it
has earned remains with the "stoozer".
Most major banks offer low-cost overdrafts for students in
the hope of encouraging them to become regular customers.
At the beginning of last year, the student visited four banks
and set up bank accounts with 0% overdrafts. He then withdrew
all the money - amounting to $6000 - and invested it for one
year in a safe term deposit at a rate of 9.25%.
The idea came to him while he was taking advantage of a bank
promotion offering students $40 to open an account - "an easy
way to make some fast beer money".
While he was filling out forms for an account with a $2000
overdraft, he noted the "very small" bank charges if the
account was in overdraft - $2 a month.
"It was virtually the same as giving me $2000 for free for 20
months."
The student then opened similar accounts at other banks.
Because two of the banks required the account to show
activity during the year, he also set up automatic transfers.
He asked the bank where he held his usual bank account to
make an automatic $150 payment each Tuesday to one of the
overdraft accounts.
"I then went to the bank where the $150 would be going and
asked them to transfer that same amount of money to the
overdraft account at another bank.
"I then went to the third bank and got them to transfer the
money back to my spending account (where it had been on
Tuesday) and the $150 showed up in my account on Friday. This
happened every week for a year."
Bank staff did not realise what he was doing and the scheme
had not been hard to co-ordinate.
"It only took a couple of minutes talking to the tellers,
telling them what I wanted, and checking to make sure they
had got it right."
He chose to invest the overdraft money at Kiwibank because it
was one of the few banks where he did not have an account.
"I didn't really want to go into [one of the other banks] and
try to set up a $6000 term deposit when I had a $2000 debit
on my other account."
People he had told about the scheme had considered the
rewards too small, and even smaller now that interest rates
had gone down.
It was only after he had set up the scheme that he realised
it had a name.
Wikipedia suggests stoozing was named after an internet
discussion board contributor, Stooz, who was a prolific
stoozer.
"Stoozing isn't exactly a way to get rich," the student said.
"That's why I just took one afternoon to go around and do it
- because the profit isn't that much."
The most important aspect of the scheme was to ensure the
borrowed money remained intact - invested safely and repaid
by the due date.
"Mostly, I just did it because it seemed like a way to make
some money and figure out some of the systems banks have in
place. It is sort of my chosen field of study."
- mark.price@odt.co.nz
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