- August 6, 2023
- Posted by: legaleseblogger
- Category: Related News
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Navy Fed: Leveraging the Power of CDs and Loans
Introduction
Navy Fed, as a service member, offers a wide range of benefits and services. One such offering is their Certificate of Deposit (CD) accounts. Currently, a 5-year CD offers an attractive yield of 4% for balances below $100,000. Additionally, they provide CD collateralized loans, with up to 100% of the CD value at an Annual Percentage Yield (APY) of 2% for a maximum term of 5 years. The AI Legalese Decoder can assist in understanding how to utilize these offerings to maximize your earnings and financial growth.
Capitalizing on CD Investments
By taking advantage of Navy Fed’s CD options, it is possible to increase your earnings significantly. For instance, imagine opening a 5-year $5,000 CD at a 4% yield. At maturity, the CD will accumulate to $6,083.26. Simultaneously, you can utilize this increased value as collateral to obtain a loan worth $5,000 at an interest rate of 6% for a 60-month term. With this loan amount, you can immediately open yet another 5-year CD at a 4% yield using the funds borrowed – amplifying your investment strategy.
Analyzing the Numbers
While the loan does generate a cost, amounting to $96.66 per month, resulting in a total payout of $5,799.84 over 5 years, the lucrative nature of the second CD more than offsets this cost. The second CD yields a similar $6,083 value. Hence, in the long term, it seems as if you are making approximately $300 by leveraging this loan strategy. Although you might initially incur a loss, there eventually comes a point where the power of compounding interest overtakes the simple interest cost of the loan. Moreover, by exploring other investing options such as a High-Yield Savings Account (HYSA), the potential for even greater profits becomes evident. For instance, with a 5% yield, the final amount after 5 years would be $6,381 – an additional gain of $581.
Understanding the Risks
As long as you have the financial capability to make the loan payments, the downsides appear minimal. However, it is important to consider the risks associated with this strategy. Economic fluctuations and unforeseen circumstances may affect the returns on investments, potentially impacting the overall profitability of the approach. It is advisable to thoroughly evaluate your financial situation and conduct further research to estimate a more accurate projection of potential outcomes.
AI Legalese Decoder: Assisting Your Decision-Making
To better comprehend the implications of this investment strategy, utilizing the AI Legalese Decoder can prove advantageous. This advanced tool can help in deciphering complex legal jargon and providing a clearer understanding of the terms and conditions associated with Navy Fed’s CD and loan offerings. In turn, this enhanced understanding can aid you in making informed decisions, enabling you to make the most of the available opportunities.
Conclusion
Navy Fed’s array of benefits and services, including their CDs and CD collateralized loans, presents a unique opportunity to maximize earnings and capitalize on compounding interest. By leveraging these tools effectively, one can potentially benefit from increased profits and financial growth. However, it is crucial to assess the risks involved and ensure you have the necessary financial means to support the loan payments. The AI Legalese Decoder can prove invaluable in navigating through the intricacies of the associated legal terms and enabling you to make well-informed decisions to optimize your financial endeavors.
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No. You aren’t making money taking out loans at 6% and buying CDs that pay 4%.
Your math is wrong because you’re looking at what a CD returns over the entire period, but you’re paying down the principle on your loan and not paying interest on the entire amount over the year. Instead of this stupid plan you’ve concocted, you should do the math for putting the 96.66/mo into a 4.25% HYSA from ally and see what you have over 5 years to understand why your plan makes zero sense.
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You’re not making money.
I love Navy Fed but those aren’t great rates, you can get better rates from a HYSA right now.
You pay taxes on your 4% interest….
I guess my first question is if they accept their own CD as collateral? Second would be the terms of the loan. Some loans require that you don’t use it directly for investment. Would be worth discovering if that’s possible prior to starting. If so, it’s a pretty good setup.
The downsides are that your money is tied up for a significant amount of time and is making marginal returns. Guaranteed, but marginal. If instead you took a collateralized loan and invested it in the S&P, you’d be looking at near 20% so far this year. Obviously more risk but that’s 4x return than a multi year obligation. You also risk losing the entirety of what you leverage as collateral should you miss payment for whatever reason. $100 a month isn’t a lot but stuff can happen and 60 months is a long time.
Make sure you take your taxes out of the gain. Not sure it’s all worth the work at the end of the day.
You must do infinite banking too….
4% is a garbage return. Large cap stock indices are the only legit way to invest your money such that it doesn’t get eaten by inflation. Put all of your cash in QQQ. You’re overthinking things.
Your math is deceptive (all fucked) because you made it complicated with multiple CD’s and assumptions on the money required to pay off the loan.
Where do you get the money to make payments on the loan when you’ve locked it up in a CD? It’ll have to be liquid meaning that’s money you’re not investing or withdrawing from investments. Your “profits” are basically being funded by losses in your other investments.
You basically rediscovered how the world macro economy works… this is a very simplified explanation
The Fed Reserve prints money and lends it to banks at zero %.. the US govt borrows the money for 2% and pays out salaries, benefits, Medicare, soc sec etc… the recipients of this money buys IPhones and those dollars eventually make it to China… China then takes those dollars and buys treasury bonds yielding 1.8% interest from the banks who lent the us govt money… China then takes those Treasuries to Europe and uses them as collateral to borrow 10 times the amount of euros at 2.5% then takes those euros and lends it to African and Latin American countries who pledge their natural resources as collateral… third world dictator skims off a few billion then goes and takes out 30 year mortgages at 4% on luxury high rises in NYC that was built by a hedge fund started by a guy who used to work at a bank and can buy treasuries at auction rates… etc etc etc lol
But yeah… basically you can keep the glitch going at little carry cost as long as the faucet keeps running… that’s what basically happens in every major economic crash like 2008
Your math is correct. This assumes several things.
1) You can actually get the loan.
2) You aren’t violating the terms of what you can use the loan money to do. *I always wonder how banks/credit unions would even know as long as you can actually make the loan payments.* You would be on the hook to pay the loan off ASAP if you violate the terms and they probably would never lend money to you. Maybe they would cease to do all business with you???
3) You can pay back the debt on time.
4) You have to pay federal and state taxes on the interest of the CD.
There may be some other things I’m not considering right now.
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Side note: A profit of $283.42 over 5 years. $4.72 a month…is that really worth it? As the numbers get bigger and possibly more worth it, you eventually would be unable to make the loan payments.
Long story short, this is too slow of a plan to build significant wealth, at least for me!
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Lol their APRs aren’t that great like it used to be. Its literally the same as any other bank
Research into REIT with monthly dividends