I stumbled upon an idea, and would like someone with solid knowledge to tell me what I’m missing.
So I’ve been looking into putting some of my tax return into Certified Deposits with my bank. I’m gonna save the money anyway, so why not get better percentage on it? In my research on how it will affect my credit and filing taxes next year, I saw an article talking about borrowing against your CD. It said that most banks will loan you up to 95% of the Deposit, as well as give you much better percentages because it’s considered a secured loan since they already own the money. The money must be paid back by the time the CD term ends, and according to this website, it looks good on your credit because it’s a loan that was paid in good standing.
My idea was this (I’m gonna use stupid simple numbers. These numbers have no bearing on actual rates)
If I get a 1 year CD for $1000 at 2% interest, I can get a loan for up to $950, with an example rate of 3% interest in the loan. Let’s say I borrow $900. What’s to stop me from depositing that loan into a regular saving account with a .5% interest, and just let it sit for the loan term, and just pay it back when the CD ends?
In theory, (according to multiple sources saying that credit scores also go up if you have money in savings, I get the score bump of the CD account, the savings account I kept the loan in, and the bump of a loan that is paid, and is now in good standing. I will probably lose out on a little bit, but between the 2% on the CD, and whatever % the other savings account has, it will hurt a lot less than if I paid the full 3% interest, instead of effectively .5%.
While this won’t be an effective way to increase savings, it looks like a great way to start pumping my credit up, which is a big ticket goal on my agenda this year.
Ignoring the obviously simplistic and likely unrealistic numbers, where is the flaw in my logic? And how transparent should I be with my bank? The CD and loan against the CD must be from the same institution, so should I walk in and tell them I plan to pull a loan against my CD for the sole purpose of pumping my credit, or will that cause more problems?
Thank you for your time and advice.
Submitted February 14, 2019 at 12:14AM by Dsx-Kalista http://bit.ly/2N3YuuR
