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Review of State Farm Bank Rates

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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State Farm CD rates

Regular CDs

CDs from State Farm Bank don’t offer the highest rates available, and with a somewhat complex early withdrawal fee policy, you can likely find a better place to keep your money in a CD.

Term

Less than $100,000

$100,000+

12 months

0.25%

0.25%

24 months

0.25%

0.25%

30 months – special term

0.25%

0.25%

36 months

0.25%

0.25%

48 months

0.25%

0.25%

60 months

0.25%

0.25%

  • Minimum opening deposit: $500
  • Minimum balance amount to earn APY: $500
  • Early withdrawal penalty: If you make a principal withdrawal within six days of your initial deposit, or within six days of your previous withdrawal, the penalty is seven days’ interest. For all other principal withdrawals, the penalty will be the greater of a minimum of $25 or:
    • 90 days of interest for a CD term of 11 months or less
    • 180 days of interest for a CD term of 12 to 23 months
    • 365 days of interest for a CD term of 24 to 47 months
    • 545 days of interest for a CD term of 48 months or greater

We like that the account minimum is low at only $500, which makes it easy to get started with little money. Another benefit is that interest compounds daily and can be added to the CD, paid out to you by check, or deposited into a State Farm Bank account.

However, rates are low compared to many other banks’ CD products, and the complex early withdrawal penalty makes it less attractive if you’d have to withdraw your funds early for any reason.

If you decide to use this product, make sure you invest money that you likely will not need to access during the time that it is invested. Also, you have to move quickly when your CD matures if you want to withdraw your funds without a penalty — there is only a 10-calendar-day grace period after which the CD will automatically renew.

How to get State Farm’s CDs

You can apply for an account directly on State Farm’s website. To be eligible, you must have a Social Security Number, Tax Identification Number, or Individual Taxpayer Identification Number. Minors may open a CD and be listed as the primary or secondary account holder; however these accounts must be opened through a State Farm agent or by phone.

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on State Farm Bank’s secure website

Member FDIC

Coverdell Education Savings Account (ESA) CDs

If saving for your child’s education is important to you, you might consider using a Coverdell ESA. Contributions are not tax deductible, but funds will grow tax-free until distributed. Plus, the earnings are used for qualified education expenses, they can be withdrawn tax-free.

Coverdell ESA funds can be invested in a CD or in mutual funds. CD rates are listed in the table below.

Term

APY (Less than $100,000)

APY ($100,000+)

12 months

0.25%

0.25%

24 months

0.25%

0.25%

30 months – special term

0.25%

0.25%

36 months

0.25%

0.25%

48 months

0.25%

0.25%

60 months

0.25%

0.25%

  • Minimum opening deposit: $500
  • Minimum balance amount to earn APY: $500
  • Early withdrawal penalty: If you make a principal withdrawal within six days of your initial deposit, or within six days of your previous withdrawal, the penalty is seven days’ interest. For all other principal withdrawals, the penalty will be the greater of a minimum of $25 or:
    • 90 days of interest for a CD term of 11 months or less
    • 180 days of interest for a CD term of 12 to 23 months
    • 365 days of interest for a CD term of 24 to 47 months
    • 545 days of interest for a CD term of 48 months or greater

Coverdell ESA CD rates are the same as traditional CD rates. The only difference is that these funds are to be used for educational expenses for students.

The contribution maximum is $2,000 per student per year up to age 18, even if multiple accounts are opened for the same student. This means if you open account for your child and your parents open an account for your child, the combined maximum is still $2,000 per year.

There is also a modified adjusted gross income cap of $95,000 for single tax filers and $190,000 for married filing jointly, after which only a partial contribution can be made to a Coverdell ESA. If your modified adjusted gross income is above $110,000 for single tax filers, or $220,000 for married filing jointly, you are not eligible to contribute to a Coverdell ESA.

Distributions from a Coverdell ESA don’t have to be reserved for college expenses. Any educational expenses for kindergarten through grad school may qualify. Qualified expenses include things like:

  • Tuition and fees
  • Academic tutoring
  • Books, supplies, and equipment
  • Room and board
  • Uniforms
  • Transportation
  • Computers and technology

Coverdell ESA funds can also be invested in mutual funds instead of CDs. Mutual funds may offer higher interest rates, depending on which funds are selected.

How to get State Farm Bank’s Coverdell Education Savings Account (ESA) CDs

An ESA can be opened by anyone, including the child for whom the funds are being saved, as long as their modified adjusted gross income falls without the limits outlined above. The combined total per year cannot exceed $2,000. There is no limit to the number of accounts that can be established for one student.

If funds contributed exceed $2,000, they must be withdrawn before June 1 of the following tax year. If they aren’t, the funds will be subject to a 6% excise tax, which will be reported on the child’s tax return each year that the excess funds remain in the account.

To open an account, call State Farm Bank at 1-877-734-2265.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

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How State Farm’s CD rates compare

While State Farm Bank offers a low minimum account deposit to open a CD, better CD rates can be found elsewhere. We’d suggest shopping around to find a higher interest rate CD, or investing your money in a different type of account.

State Farm’s IRA accounts

IRA CD rates

State Farm Bank’s IRA CD has a low account minimum of only $500 and also offers both a traditional and Roth plan. Interest is compounded daily, but rates are low compared to what is available from other banks.

Term

APY

12 months

0.25%

24 months

0.25%

30 months Special Term

0.25%

36 months

0.25%

48 months

0.25%

60 months

0.25%

  • Minimum opening deposit: $500
  • Minimum balance amount to earn APY: $10. If you’re age 59 ½ or older and are taking normal distributions, the account balance may fall below the minimum opening balance. However, it cannot fall below $10.
  • Early withdrawal penalty: If you’re age 59 1/2 or older, normal distributions are allowed without an early withdrawal penalty. However, if you want to transfer funds to a different IRA, withdrawals will be subject to early withdrawal fees. If you make a principal withdrawal within six days of your initial deposit, or within six days of your previous withdrawal, the penalty is seven days’ interest. For all other principal withdrawals, the penalty will be the greater of a minimum of $25 or:
    • 90 days of interest for a CD term of 11 months or less
    • 180 days of interest for a CD term of 12 to 23 months
    • 365 days of interest for a CD term of 24 to 47 months
    • 545 days of interest for a CD term of 48 months or greater

Like other CD products with State Farm Bank, you can withdraw interest earnings without penalty. Another nice benefit with this retirement investing account, you are also eligible to withdraw a portion of your original deposit as a normal distribution without penalty if you are over age 59 1/2. Keep in mind that any interest payments withdrawn will be considered distributions and taxes and IRS penalties may apply if you are under age 59 1/2.

However, one drawback with this account is that you can’t easily access your balance information online, and there are no electronic statements available.

How to get State Farm’s IRA CDs

To open an account, call State Farm Bank at 877-734-2265.

You can open your account with $500 or more and select either a Traditional or Roth plan with terms between 12 and 60 months.

The contribution limit for 2018 is $5,500, or 100% of your earned income, whichever is less. If you are over age 50, you can contribute an additional $1,000 per year.

There are also limits to the amount you can deduct from your taxes based on your adjusted gross income. These limits are based on federal law.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

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How State Farm’s IRA CD rates compare

Rates for State Farm’s IRA CD rates aren’t the highest on the market. There are other banks that offer better IRA CD rates so you can earn more interest on your money. One nice benefit that may not be available at all banks is that interest is compounded daily at State Farm Bank.

IRA Money Market Account

Investing in an IRA Money Market account with State Farm Bank may be easier than using their IRA CD product because you can electronically contribute a portion of each paycheck into your Money Market account. Plus, there’s no time commitment required for your investment.

Minimum balance amount

APY

$100 - $9,999

0.01%

$10,000 - $24,999

0.01%

$25,000 - $49,999

0.01%

$50,000 - $99,999

0.01%

$100,000 - $249,999

0.01%

$250,000 - $24,999,999

0.01%

$25,000,000+

0.01%

  • Minimum opening deposit: $1,000
  • Minimum balance amount to earn APY: $100
  • ATM fee: None
  • ATM fee refund for foreign transactions: Up to $10
  • Overdraft fee: $25 maximum of 3 per day

With State Farm Bank’s IRA Money Market Account, there is a minimum deposit of $1,000 required to open your account. However, if you take distributions, your account balance may fall to less than $1,000. The minimum balance required to earn interest is $100; however if your average daily balance is less than $500, you will be charged a minimum balance fee of $10.

Withdrawals from this account prior to age 59 1/2 may be subject to IRS penalties. Plus, you must give at least seven days notice before making any transfers or withdrawals from your account.

Interest on this account compounds daily but is only added to your account balance monthly.

You are only allowed to make six transfers from your account each month by phone or mail, otherwise you may be subject to an excessive transaction fee of $10. State Farm also has the right to refuse transactions after you’ve hit the limit, or even close your account. You can make unlimited withdrawals by mail or telephone.

How to get State Farm’s IRA money market account

To open an account, call State Farm Bank at 877-734-2265.

To be eligible, you must be at least 18 years old. IRA money market accounts can only have one owner.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

State Farm’s checking account options

Interest Checking

Although the minimum amount required to open a State Farm Bank Interest Checking account is only $100, you must maintain an average daily balance of $500 in order to avoid a minimum balance fee. In addition, your account must have a balance of $2,500 in order to earn the stated interest rates.

Minimum deposit amount

APY

$0 - $2,499

0.00%

$2,500+

0.01%

  • ATM fee: None.
  • ATM fee refund for foreign transactions: Up to $10
  • Overdraft fee: $25, maximum of 3 per day. Overdraft protection is $3 for a transfer from another State Farm Bank account.

You can’t just deposit $100 to open your account and begin earning interest. In fact, if you only deposit $100 to open your account, you will be subject to a minimum balance fee of $10 if your average daily balance isn’t at least $500.

Plus, if you want to earn interest on your money, you have to have a balance of at least $2,500, significantly more than the minimum required to open the account, or even the minimum required to avoid the minimum balance fee. If you don’t read the fine print, this can be misleading.

There are much better options for interest bearing checking accounts with higher APYs and lower minimum balance requirements.

How to get State Farm’s Interest Checking account

You can apply for an account online in only 10 minutes. You must have a Social Security Number, Tax Identification Number, or Individual Taxpayer Identification Number in order to apply.

There must be at least one account holder that is age 18 or older. Minors may be account holders, but you must open an account with a State Farm agent or by phone.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

Regular Checking

The requirement to open a regular checking account is much lower, plus there are no minimum balance fees to contend with.
  • Minimum deposit amount: $25
  • ATM fee: None.
  • ATM fee refund for foreign transactions: Up to $10
  • Overdraft fee: $25, maximum of 3 per day. Overdraft protection is $3 for a transfer from another State Farm Bank account.

While this account doesn’t earn any interest, we like that there are essentially no fees if you don’t overdraw your account. It also has handy features like mobile check deposit and a mobile banking app. You can also get account alerts by text or email.

It may be a good option for those who aren’t able to meet the minimum balance requirements for State Farm Bank’s Interest Checking account.

However, there are still plenty of online banks that offer interest-bearing checking accounts with no or low minimum balance requirements. You may as well be earning interest on your money with an online bank if you can.

How to Get State Farm Bank’s Regular Checking Account

You can apply for a regular checking account online on State Farm’s website in only a few minutes.

To be eligible for a checking account, you have to have a Social Security Number, Tax Identification Number, or Individual Taxpayer Identification Number. There can be multiple account holders listed, but at least one of them must be 18 years or older. If the account will have a minor listed, it must be opened over the phone or with a State Farm agent.

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How State Farm’s checking accounts compare

Compared to these interest-bearing checking accounts with several online banks, there’s no way State Farm Bank can be competitive. Their account minimums are much higher in order to earn interest. Even then, the amount of interest earned with State Farm is significantly lower than other banks.

We suggest checking out other options besides State Farm if you want to earn interest on your checking account.

State Farm Bank’s savings account options

Consumer Savings Account

The interest rate on State Farm’s Consumer Savings Account may be higher than some brick-and-mortar banks, but it can’t compete with online savings options.

Minimum balance amount

APY

$0 - $9,999

0.01%

$10,000 - $24,999

0.01%

$25,000 - $49,999

0.01%

$50,000 - $99,999

0.01%

$100,000 - $249,999

0.01%

$250,000 - $24,999,999

0.01%

$25,000,000+

0.01%

  • ATM fee: None.
  • ATM fee refund for foreign transactions: Up to $10
  • Overdraft fee: $25, up to 3 per day. Eligible for $3 overdraft protection from a linked State Farm Bank account.

The minimum deposit to open a savings account is $100. If the main account holder is over age 18, there is a minimum balance requirement of $100; if the balance falls below $100, a $3 fee will be charged.

This could be a good starter savings account for those under age 18 who are looking to earn a little interest on their money, especially since there’s no minimum balance fee for main account holders under age 18. That said, there are other online savings accounts with much higher interest rates available.

How to get State Farm’s savings account

A savings account can be opened online if you are over age 18 and a minor won’t be listed as an account holder. However, if a minor will be an account holder, you must open the account by phone or by working with a State Farm agent.

To be eligible for a State Farm savings account, you have to have a Social Security Number, Tax Identification Number, or an Individual Taxpayer Identification Number.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

Health Savings Account (HSA)

Having a HSA is a nice option for State Farm Bank customers; however, higher interest rates can be found elsewhere.

Minimum balance amount

APY

$0 - $2,499

0.05%

$2,500 - $9,999

0.15%

$10,000+

0.40%

  • Annual fee: $25
  • ATM fee: None
  • ATM fee refund for foreign transactions: None

An HSA can be a good way to get tax benefits and earn a little interest at the same time. State Farm’s HSA works essentially like a checking account, but it’s only to be used for qualified medical expenses.

There is no minimum balance fee associated with this HSA account, and after opening, you can make deposits at any time. There is an annual fee of $25 on the first anniversary of your account opening and every year thereafter.

Having an HSA can be a good idea, but you can likely find one with a better interest rate.

How to Get State Farm’s HSA

If you want to open an HSA with State Farm, call 877-734-2265. There is no option to apply online.

By federal law, you can only use an HSA in combination with a high-deductible health insurance plan.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

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How State Farm’s savings accounts compare

While it is a good idea to have a savings account, you can earn more interest on your savings by using a different institution. Savings interest rates with State Farm are low, especially when compared to online savings accounts.

State Farm Bank’s Money Market account

Consumer Money Market Account

If you’re new to State Farm Bank, this is the best way to earn extra interest on your initial account opening and deposit. There is an introductory interest rate of 2.00% (1.17% APY) for your first deposit up to $249,999.

Minimum balance amount

APY

$0 - $9,999

0.01%

$10,000 - $24,999

0.01%

$25,000 - $49,999

0.01%

$50,000 - $99,999

0.01%

$100,000 - $249,999

0.01%

$250,000 - $24,999,999

0.01%

$25,000,000+

0.01%

  • ATM fee: None.
  • ATM fee refund for foreign transactions: Up to $10
  • Overdraft fee: $25, up to 3 per day. Eligible for $3 overdraft protection from a linked State Farm bank account

A State Farm Money Market Savings account will help you earn more interest than a traditional savings account with State Farm. If you have the funds available to do a large introductory deposit, you can earn extra interest versus depositing smaller amounts over time because of State Farm’s special introductory offer.

The minimum amount required to open an account is $1,000. However, if you withdraw a portion of your funds later, keep in mind that there is a minimum balance fee of $10 that will be imposed if the average daily balance is below $500.

Like other savings accounts, there is a limit of six transfers from your account each month, including automatic transfer, bill pay, etc. If you go beyond six transfers, State Farm has the right refuse your transaction or even shut down your account. You may also be subject to a $10 fee for excessive transactions. There is also a requirement that you must provide written notice at least seven days before any withdrawal or transfer from the account.

How to get State Farm’s Consumer Money Market Account

You can apply for an account online. To be eligible, you must have a Social Security Number, Tax Identification Number, or Individual Taxpayer Identification Number. One account owner must be over age 18. If a minor will be an account owner, the account must be opened over the phone or via a State Farm agent.

SEE DETAILS Secured

on State Farm Bank’s secure website

Member FDIC

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How State Farm’s money market account compares

While the regular rates on State Farm’s Money Market Savings are not as high as the special introductory rate, they’re much higher than with State Farm’s regular savings account. However, there are still higher money market rates available at other banks. We think it’s a good idea to shop around for a better rate.

Overall review of State Farm banking products

State Farm does have decent terms and interest rates on their products, but they’re certainly not the lowest rates on the market. However, if your main concern is getting the most interest for your money, we recommend finding another bank to house your funds. State Farm is consistently outperformed by other banks that offer higher rates and similar (if not better) terms.

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Dollar Savings Direct Review

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Opening an account

You can open a Dollar Savings Account™ online by providing your basic information, like your tax identification number and your address. Customers have to be age 18 or older. And you have to have a personal checking account with a US Bank that you can link to your new Dollar Savings Account. To open an account, you need to transfer at least $1.00 from your current bank.

If your online application is approved, you will be able to log into your account and view your balance immediately. However, DollarSavingsDirect needs more information, it will contact you within a few business days. The initial deposit amount will not be available to you for five business days after opening the account, or 10 days if you fund the account via check.

Funding your account

A linked checking account can be used to fund your new Dollar Savings Account. You can also choose to fund your account with a physical check by mail, but in that case you won’t have access to your funds for 10 business days.

If you want to open an account with a check, you must select this option during the application process. Then you will receive instructions about where to mail your check. Your check must be written from your linked checking account. Checks are only accepted for your initial deposit, after which making any future deposits or withdrawals is via electronic transfer, or Automated Clearing House (ACH) transfer.

An initial minimum deposit of $1 is required to open your Dollar Savings Account, after which no minimum balance is needed to maintain the account. However, a minimum balance of $1,000 is required after the account has been established in order to earn the APY disclosed (at the time of publishing).

Accessing your money

After you’ve opened and funded your Dollar Savings Account, you can transfer funds electronically in or out by logging into your account online. Online access is available 24 hours a day, seven days a week. However, you may feel disappointed by the digital experience offered by Emigrant Bank and its subsidiaries, including Dollar Savings Direct. There is no mobile app you can use to access your account easily, and the website itself has a dated look and feel.

Keep in mind that your Dollar Savings Account is subject to the Federal Reserve Board’s Regulation D, which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. If you make more than the amount mandated by Federal Law, your bank may charge you a fee, convert your account to a checking account or simply close it.

If you funded your account with a check, there is a 10-business-day hold before you may withdraw your funds. All electronic transfers, or ACH deposits, have a five-business-day hold, no matter if it’s your initial deposit or a future deposit.

After you initiate your withdrawal online, it can take from two to four business days for the funds to appear in your connected external checking account. It will also take the same amount of time to transfer money into your Dollar Savings Account.

Why DollarSavingsDirect  may not be the best choice

DollarSavingsDirect offers the Dollar Savings Account with no minimum deposit required and no fees or service charges. This, combined with a solid APY, makes the account seem like an attractive option to new customers.

However Emigrant Bank, the parent of DollarSavingsDirect, has a habit of using high interest rates to attract new customers and deposits to its sub-brands before lowering the rates significantly once they’ve achieved their goals. In their websites account disclosures, you will find the phrase “The Bank, at its sole discretion, may change the APY and interest rate on the Account at any time.”

DollarSavingsDirect and Emigrant Bank, along with any other bank, are within their legal rights to change the APY on savings accounts at any time. If you can find a bank with more transparent pricing practices, you may be better suited — even if the APY is lower. That’s because as a general principle, a more stable APY will generate more interest over the lifetime of an investment.

If you do decide to open a Dollar Savings Account, keep an eye on the interest rate over time. You may want to withdraw your funds and store them elsewhere if rates drop significantly, as they have done historically.

Competitors to consider

Luckily, there are plenty of other high-yield online savings accounts that tend to have more stable — and even higher — interest rates. Here are a couple to consider:
High Yield Savings from Synchrony Bank
Synchrony Bank, a direct competitor to DollarSavingsDirect, has a savings account with a stellar APY. It also offers an account without a minimum balance or monthly fees. Plus, you can also get an ATM card to access your funds. Synchrony Bank has a mobile app, which makes monitoring your savings a breeze.
Online Savings Account from Ally Bank
Another top competitor is Ally Bank. Ally offers a good APY with no minimum balance required. It also offers a free checking account (also without a minimum balance requirement), which makes it even easier to manage your money all in one place. Ally also has a stellar app that should cover everything you need.

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on Ally Bank’s secure website

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Bottom line

It’s tough to beat the high APY on a savings account that DollarSavingsDirect offers. However, sticking with an account that offers a slightly lower APY — but is more consistent with the interest rate — would make it easier to manage getting the best return on the money in a savings account. Alternatively, you could choose a bank from the options above, which outpace DollarSavingsDirect in every way including the one that really matters: APY.

If you open a Dollar Savings Account, you’ll want to keep a constant eye on the rate, knowing that it may drop significantly in a few months, based on some of Emigrant Bank’s past practices. Most banks will vary their APY to some degree, but not as non-linearly as Emigrant Bank seems to do. Also, if you are unable to transfer funds out of your Dollar Savings Account when the rate drops, the advantages of opening a high-yield savings account will be lost almost entirely.

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Personal Loans

Should You Use Your Assets to Get a Collateral Loan?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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If you need a loan for any reason, whether you’re refinancing high-interest debt or paying for home improvements, you may be considering a personal loan. However, qualifying for an unsecured personal loan can be difficult if you don’t have a stellar financial history, credit score or debt-to-income ratio.

If that’s the case, you might be tempted to apply for a secured loan instead. We’ll tell you everything you need to about collateral loans here.

What is a collateral loan?

A secured loan, or collateral-backed loan, is one backed by your assets, which could include things like a vehicle, a savings account or a piece of property, or real estate.

A person with less-than-stellar credit might have a better chance of qualifying for a collateral loan because the lender knows they can seize that person’s assets if he or she defaults and misses payments on the loan.

Many people may not have heard the term collateral loan in everyday life, but that’s because they’re rarely called by that name specifically. Chances are you’re familiar with some of the most common collateral loans — a home loan (aka a mortgage) and car loans. These types of loans are generally secured by the asset being purchased with the loan.

It’s also not uncommon for people to take out a collateralized personal loan using an asset they’ve already owned for some time. For example, you’ve probably heard of a title loan, which is a type of loan that requires the title of a paid-off vehicle as collateral to back it.

How a collateral loan works

Collateral loans and unsecured loans work primarily the same way. You’ll be required to fill out a loan application detailing how much funding you’re requesting, what it will be used for and sharing your personal and financial details, like your employment history, proof of income and authorization to pull your credit score and history.

After you are approved for your loan, you’ll receive the funds and you’ll be on the hook to make monthly payments until the end of the term, or until the loan is paid off in full. After the loan is paid off, the term of your loan ends, even if you pay it off early.

The main difference between a secured collateral loan and an unsecured loan is that the asset you’ve pledged can be repossessed by your lender if you default on the loan. For example, if you put your car down as the asset against your loan and you stop making your payments, a tow truck can show up in your driveway to haul your car away.

Qualifying for a collateralized loan is easier than qualifying for an unsecured loan because the approval of your application is based on both the value of your asset and your credit worthiness says Michael Dinich, a Registered Financial Consultant from Sayre, Pa.

With an unsecured loan, your credit worthiness is mainly used to evaluate your application. This makes a collateral loan a better option if you don’t have a strong credit score.

You will have to prove the value of your asset to be used for a collateral loan and be able to prove ownership with a title for vehicles or property, or by having your name on the account if you pledge savings or an investment portfolio.

Dinich says specific criteria needed to qualify for a collateral loan will vary by lender and the amount of money you are attempting to borrow.

Types of collateral you can use to secure loans

As mentioned, there are many different types of collateral loans you can apply for different purposes.

Below is a list and summary of some of the most popular types of collateral loans, categorized by the asset used to back them.

A home

Using your home as collateral for a loan is common. A few types of loans that may use your home as collateral include:

  • A new mortgage loan
  • Refinancing an existing mortgage
  • Taking out a second mortgage
  • Home equity line of credit (HELOC)

Home loans such as these can be obtained at most brick-and-mortar banks, or even online by filling out an application and going through the mortgage or HELOC processes.

Loan terms on a traditional mortgage or mortgage refinance can vary from 15 to 30 years. The length of the loan, along with many other factors, will affect the interest rate you receive.

Using your home to secure a loan is something that should be carefully considered to ensure you have the ability to pay the loan payment each month. If you default and your home is foreclosed on, you could find yourself living on the street.

A vehicle

Auto loan. Most commonly, your car will be used to secure the auto loan against its purchase. But, if your car is already paid off, you may be able to use it as collateral against a personal loan instead.

The value of your car will help determine how much funding you can receive when you are using your car as the collateral for a personal or auto loan. The value of your car will be determined by the lender. It may be based on an estimate from a website like Kelley Blue Book, or by finding the sales prices on similar vehicles in your area.

Shop around at several different banks and credit unions to get the best interest rate and terms for your auto or personal loan. The rates can vary quite a bit depending on the lender’s policies.

Terms for auto loans can be as long as seven years, which will lower your monthly payment, but cost more in interest over the life of the loan.

Title loan

Car title loans are also secured using your car as collateral. But in this case, you have to surrender the title of your car to the lender in order to get your funds for a short term of 15 to 30 days. The interest rates on car title loans tend to be very high, in the triple digits, so you should avoid them if possible.

Investments and savings

Using your investment account as collateral on a loan can be a bit more tricky, especially if you want to use a tax-deferred investment, like an annuity, as collateral for a loan.

“Before you use your annuity, ask the bank how they will file the paperwork, and check with your annuity to make sure you can use it as collateral,” said Dinich.

The reason is because tax-deferred investments may be subject to tax penalties if they are used as collateral on a loan.

“That would be a double whammy,” said Dinich. “You’d be paying interest to the bank, as well taxes on the annuity interest.”

That said, banks and credit unions do offer loans on nonqualified investments, such as:

  • Savings and Certificates of Deposits (CDs)
  • Annuities
  • Mutual Funds
  • Money Markets
  • Qualified investments, which are pre-tax investments like 401(k)s, 403(b)s, IRAs, etc.

Dinich said one reason people may get a loan against their savings or investments is to help build their credit history.

Life insurance

Similarly, Dinich says you may be able to borrow against the cash value of your life insurance policy.

“Some people buy cash-value life insurance just to have the option to borrow against it later,” says Dinich.

According to Dinich, this concept is also known as “infinite banking”. The interest paid during the loan term will be put back into the cash value of the insurance policy.

Savings

Although it may sound counterproductive at first, banks and credit unions will also loan money against your savings account balance as collateral.

“Some people wonder why you should borrow against your savings if you have the money,” says Dinich. “But, there are a few instances where it makes sense.”

One example given by Dinich is if your bank or credit union offers perks based on your savings account balance, such as a lower rate on a mortgage loan if your savings balance is $20,000 or greater.

Later, if you’re in a cash crunch, you may not want to take money out of your savings account if it would put you below the $20,000 threshold. Instead, you might decide to take out a loan against your savings as collateral.

Dinich says taking a short-term loan against your savings could also be a way to build or establish credit.

Your paycheck

Future paychecks are most often used as collateral for payday loans. This is the most costly type of collateralized loan available.
According to Dinich, the interest rates can be as high as 400%.

“People get stuck in a cycle of being behind when they take out payday loans,” he said. “Then they have to pay fees on top of the interest in order to continue extending the term of their loan.”

Dinich said payday loans should only be used as a last resort in an emergency. If you must use your future paychecks to secure a payday loan, you should shop around to find an honest and reputable lender, and not be afraid to ask questions.

“The commission rate paid to sales people for payday loans is high, which can make them become pushy and try to hide the fine print about interest rates and fees,” said Dinich.

As an alternative, Dinich says to ask friends and family for a short-term loan, or seek assistance programs available from some employers who may give an advance on your paycheck.

Alternatives to secured personal loans

In addition to secured personal loans and the other types of loans listed above, you may consider trying to improve your credit history and reapply for an unsecured personal loan.

Keep in mind that an unsecured personal loan may have a higher interest rate than a secured loan, and you may be limited to borrowing a smaller amount of money. This is because unsecured loans are riskier for lenders.

APR

As low as 2.49%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

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Disclosure

LendingTree is not a lender. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. Terms Apply. NMLS #1136.



As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 2.49% (2.49% APR) on a $20,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected). Terms Apply. NMLS #1136

If your credit card has a high enough limit, you may also be able to use it instead of taking out a new loan. However, the interest rate on your credit card is likely to be higher than most secured loan options. If you have poor credit, you may be able to qualify for a secured credit card to help build your credit history.

Another option to consider is to take out a loan from your 401(k) directly. This is not a collateralized loan in the sense that you will forfeit your 401(k) assets if you don’t pay back the loan. You are effectively borrowing from yourself. This can be advantageous because the interest paid on the loan will be put back into your 401(k) as you’re paying yourself to borrow money. However, there are other risks to consider. You’re going to miss out on potential growth for any funds you pull out your 401(k) and if you’re fired or leave your job, your loan will likely come due immediately.

Borrowing smart

Before you opt for any of the choices in this article, make sure you’re being smart with your borrowing. Don’t take on more debt than you afford to pay. Missing payments will not only harm your credit score and make it more difficult to qualify for a new loan in the future, but if you have a collateralized loan, your assets could also be seized to help pay back the loan.

You should also take your time to shop around for the best lender and product to fit your needs. Don’t be afraid to ask questions about any loan product before you apply. If any lender is too pushy, it’s a red flag.

The bottom line

Collateral loans aren’t your only option for getting funding. But, if you can’t qualify for an unsecured personal loan, they may be a good thing to consider.

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