Metrocard Math

March 2, 2009

6a00d8341e31c353ef00e553b358838834-640wi.jpgThe MTA has proposed a plan that would cause the price of the monthly Metrocard to go up from $81 to $103, an increase of over 27%. So I did some research.

An unlimited monthly Metrocard is good for 30 days from the day you begin using it; it also has an expiration date on the back, assuring that you begin using it by a date about one year from purchase.If the cost is going to go up so astronomically, why not just buy a year’s worth of cards in advance, and save $264?

In fact, other than the law against it, there’s no reason a person couldn’t buy a large quantity of $81 Metrocards and sell them over the next year for, say, $95. People would totally meet you in a dark alley to save $8, and you’d make $14 on every sale. If you had $5,000 to invest in $81 Metrocards, you could buy 61 of them, with change left over. Selling each at a $14 profit would make you $854. That’s a 17% return on investment, which, if you are an average American, is not enough to keep up with the APR on your credit cards, but is certainly superior to the performance of the rest of the financial sector right now.

But even if you’re uncomfortable with Metrocard scalping, isn’t the logical move for every monthly Metrocard user who is able to purchase 12 at once for his personal use?

If you don’t have $972 all at once to pull this off (fancy that), compare the APR on your credit card to the $22 savings you’ll gain every month. For instance:If you have a credit card with an APR of 18%, divide 18% by 12 to get the monthly periodic rate of 1.5%.Now say you buy 12 monthly Metrocards this month. Your balance is $972. Your finance charge is $14.58 — a fine savings over the $22 extra you’d have to pay for a new Metrocard. But it gets better! Because, if you simply pay to the card some amount of money in between the $81 you would have paid anyway, and the $103 you’re avoiding, the balance will go down, and your savings will increase every month! Said another way, the first month, you’re paying finance charges on all 12 cards, but the second month, you’re only paying finances charges on 11 cards, etc….

In actual numbers: The first month, when you owe $972, let’s take the money you would have paid for the $81 Metrocard and pay that to the credit card, and then let’s also be responsible and take care of that $14.58. So far, you’ve saved $7.42. The second month, you owe $891 (the original $972, minus the $95.58 you paid). Your finance charge is $13.37. Go ahead and pay $81 plus the $13.37 to the card — you’ve saved $8.63, or a cumulative total of $16.05! The third month, your balance is $729 and your finance charge is $10.94. Pay $81 plus the finance charge, and you’ve saved $11.06, or a cumulative total of $27.11! And this is allowing for a credit card with a usurious 18% APR!

Of course, few people pay off their credit cards with the discipline they originally intend when making large purchases in the first place. However, if you actually just have $972, you should really go buy a dozen Metrocards (or, if you’re less than halfway through a card now, maybe just 11 cards, to be safe).

Update: Don’t do that. I stand by all the math above, but I’ve been informed that the MTA is onto this plan, and will set “sunset dates” by which cards purchased at the old price must be swiped. I imagine that if you wanted to (illicitly) Metrocard-scalp, you could probably still do it for a month or two until the dates kicked in.

I hope you’ve enjoyed today’s consumer math post.

Sincerely,

Jen

You may also enjoy How to Obtain Free Unlimited iTunes By Admitting That You Have an Addiction and are a Total Fucking Yuppie About It and What Happens When Math Teachers Read the Fine Print.

Posted by jen | Filed Under consumer affairs 

Comments

16 Responses to “Metrocard Math”

  1. Vicki (Jen's Mom) on March 2nd, 2009 10:57 pm

    Jen,
    What an entertaining and informative post.
    The more I read, the more I thought “How cool is this?”
    As your mother, I am so proud.

  2. John on March 3rd, 2009 12:18 am

    Last time they raised the rates they gave people a grace period for those that had old cards and could change the date at any time. I bet the grace period will be less than a month this time around.

    Take a look here: http://cityroom.blogs.nytimes.com/2008/03/10/mta-announces-grace-period-for-old-metrocards/

  3. Sean Murphy on March 3rd, 2009 12:29 am

    Nice, Jen,
    Now we need to know when they are officially going to raising the price, so we can implement your brilliant plan.

    cheers,
    Murph.

  4. Benjamin Kabak on March 3rd, 2009 12:43 am

    In the past, the MTA has severely limited expiration dates on pre-purchased 30-day MetroCards. In fact, in 2008, the MTA set a sunset date of June 1 for all Unlimited Ride cards purchased prior to the fact hike. In other words, if you buy a 30-day card and the fares go up, you only have a few months to start using it before it becomes worthless. Following that expiration date, a holder of an unused card will have to go through the MTA’s refund process.

    So stockpiling MetroCards doesn’t exist and could wind up costing anyone who does it a fair amount of money or time.

  5. norman on March 3rd, 2009 1:38 am

    This seemed like a great idea except for one hitch: Metrocards expire. So if you bought 12 Metrocards today, they would all expire next month.

  6. anon on March 3rd, 2009 2:01 am

    the mta won’t let you hang onto cards forever. They institute a period in which you need to use it, like a couple of months. you can’t buy 5 years of metro cards and expect to be able to use them. Same thing happened last fare hike

  7. Sebastian on March 3rd, 2009 2:19 am

    I’m sad to break the news to you, but unlimited metrocards actually “expire” much sooner than the date in the back… usually one or two months after the fare is increased.

    The MTA just programs the turnstiles to not accept “old fare cards” after a certain date.

  8. Rachael on March 3rd, 2009 2:31 am

    Uhhhhh, last few times they raised the fares on the unlimited monthlys, they also instituted an expiration date on the old fares… Even if you bought a year’s worth, they would be no good and you’d have to return them for your money back because the MTA will cancel them after their expiration date… Just FYI

  9. Steve on March 3rd, 2009 2:35 am

    Sorry, but the MTA is way ahead of you. Every time there is a fare increase they only allow a short grace period afterward for which unlimited Metrocards can be used– the date of purchase is encoded on the card, so it’s easy for them to monitor and invalidate cards. They will refund your money at face value, but you won’t be able to make a gain other than perhaps two or three cards (at most) at the cheaper rate.

    For per-use cards, they simply start charging you the higher rate when the increase kicks in– per-use cards don’t actually have a number of rides, just a dollar balance.

    See http://secondavenuesagas.com/2008/03/10/mta-sets-june-grace-period-on-all-pre-hike-metrocards/ for what happened last time fares went up.

  10. Jewbacchus on March 3rd, 2009 3:50 am

    It makes me great joy to see math on the internet not in the form of a divided by zero macro.

  11. Jewbacchus on March 3rd, 2009 3:51 am

    Gives me great joy, not makes me. Maybe leave the makes me. I’m at your mercy, moderators.

  12. John on March 3rd, 2009 4:59 am

    On pen and paper, it seems like a great idea. Except for the fact, that sadly the MTA takes this into account and controls how long the outstanding metrocards can be in effect for. They did this last year for the price increase from 73ish to 81 dollars for the monthly.

    Just letting you know the stockpile idea is great, just wont work realistically.

  13. Matt on March 3rd, 2009 5:05 am

    Unfortunately you’re not smarter than the MTA. They will set a grace period, I believe it was two months last time they hiked the fare, by which time you must use those unlimited cards. The expiration date on the cards means nothing in this case. If you have cards after that grace period, you have to mail them in to get a refund. Sorry.

  14. ChickenUnderwear on March 3rd, 2009 11:18 am

    The MTA also does not let individuals sell metrocards. I had the same idea, the MTA shut down my ebay sales or metrocards.

  15. Arthur on March 3rd, 2009 2:35 pm

    Sorry Jen, doesn’t work that way. The MTA sets an expiration date on the cards when they up the prices, and it’s usually 2-3 months after the fares change. So you’ll be stuck holding 10 useless metrocards, and be out 800 bucks.

  16. chelsea on April 24th, 2009 10:41 am

    that is all great in theory, however, all metrocards under the old rate expire as of July 7th 2009. they will be refunded at a prorated cost.

Got something to say?