With a financial background and economic education I have learned of ways to make money work for you, even in today's low interest rates. I went to the bank today and requested a 6 month loan to use for my new Escape
purchase. With my sale proceeds of my other trailer I still needed to borrow around $10,000 and wanted to hypothecate a loan using money on deposit as collateral.
Bank: We have a 1.9% home equity loan special
Me: I do not wish to place a lien on my property, I have a CD which matures in 3 years paying me 2.5%, I wish to use that.
Bank: ok, let me look at the rate, our rate for 6 month to 24 month collateral loan is 3.5%
Me: Great, I want to borrow it for 7 months because I have another 12 month cd maturing that is only paying me 1.2% which I can use to pay off the loan in 7 months from now.
Bank: ok we can set up a loan for $10,000 using your CD as collateral, no payments due for 6 months. Here is your check. I thought, this is too easy.
Me: So while you are paying me 2.5% on my $10,000, I do not have to pay you anything for 6 months on my loan and in the 7th month when I pay the loan back my interest charge is 3.5% or 1% more than what you are paying me. That is $100/year or a little more than $50 for 6 months of use of their $10k.
Great way to do business.
I guess with the high credit card fees banks are now charging, they are not offering high rates of return but also not charging high interest rates on their personal loans. I think the most that a bank can charge for hypothecated interest is 2% more than what they are paying you on your money. If I chose, I can pay off the loan early and still have both my cd's still open in the bank. No liens, no credit checks,no title
releases, very simple, very cheap source of liquidity, loan hypothecation. Great way to buy a car also and at the end of the term you have you car and still have your money in the bank too.