How to Borrow Against Your Savings

You can secure a loan with a variety of different types of collateral, including the cash that you keep in your savings account. It may seem counterintuitive to borrow money from someone else if you have available cash. However, many people use cash-secured loans to build their credit history. You may have trouble obtaining financing if you have never utilized credit in the past, but many lenders approve savings-secured loans for everyone, which means you can build or improve your credit history with one of these loans.

Go to the bank and identify yourself by providing the teller with at least one form of identification, such as a passport or driver's license. Ask the teller how much money you currently have in your savings account. You can borrow an amount equal to the savings account balance, so having reviewed the balance, you must decide how much you want to borrow.

Speak to a customer service representative and ask for interest rate quotes and payment amounts for savings-secured loans. Tell the banker how much you intend to borrow and choose a loan term based upon the payment amounts. Do not take out a short-term loan if you cannot afford to make the monthly payments.

Ask a customer service representative to open a certificate of deposit account in your name. Open the account with funds from your savings. CDs are an illiquid type of savings account that you can secure loans against so you must transfer enough money from your regular savings to the CD to cover the loan amount.

Choose a CD term. The CD term must last for at least as long as the loan term, so if you want to repay the loan over the course of five years then you must choose a CD with a term of five years or more. The interest rates on CDs vary but while banks offer promotional rates on some short-term CDs, many banks offer the best rates on the longest-term CDs.

Sign the CD contract and keep a copy of it for your records. Review the loan agreement to ensure the rate and term are as quoted and then sign the loan document. You can accept the loan proceeds in the form of a check, as cash, or you can have the money directly deposited into your account.

Tips

  • If you run your own business, your insurance company may require you to keep a certain amount of cash in the bank at all times so that you have sufficient funds to cover your insurance deductible. If you cannot obtain another type of financing, you can borrow against your cash savings without impacting your insurance coverage. If you instead spend your cash, then your insurer could drop coverage due to your lack of available funds.

Warnings

  • When you borrow against a savings CD account, the lender places a so-called "hard freeze" on the account. This means you cannot access the money inside the account until you have repaid the loan in full. If you fall behind on your payments, the lender can liquidate the CD and use the proceeds to pay off the debt.