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There’s no free lunch. You will be taking additional risk by doing this even if the downside seems unlikely or remote.
by drivebyhooting 3y ago
There’s no free lunch. You will be taking additional risk by doing this even if the downside seems unlikely or remote.
- ericpauley 3y agoIf the loan % is lower than a savings account then there is no/0/zero risk, so long as you stay under FDIC limits. Your deposit earns money and is backed by the full faith and credit of the United States government.
- deleted 3y ago[deleted]
- stanleydrew 3y agoThe loan will usually be at a fixed-rate, while the interest paid on your deposits will fluctuate. So there is still risk that your net interest margin will go negative at some point.
- ericpauley 3y agoGet a CD or buy treasuries with a matched maturity date. Or if you don’t want that and the savings rate goes below you can pay off any time (check your terms).
- imtringued 3y agoYes, this is just a roundabout way to invest into stocks with borrowed money. There is probably an optimal portfolio for this strategy to minimize the risk but then it is no longer the obvious win that so many people think it is. If we assume 8% returns and you only put 50% in the stock market and your loan costs 2% interest then your total benefit is only 4%. Putting all of it might get you 6% but you are now taking a significant amount of risk.
- HWR_14 3y agoThe last few times I remember, the interest charged on the loan was less than that generated by T-bonds of the same length.