So has anyone considered this ? You'd need to be in a stable financial situation to do it with good cash flow. IT's probably taboo by the banks but it's something I've been trying but can't get hold of a loan.
Before I go any further, please understand it's just my brainstorming, and you have to be really savvy financially and understand the ins and outs of loans to benefit from it, you'd also have to be in a pretty secure place to be able to afford the risk!
It's the LOAN/ISA trick.
The basis is - interest rates are currently going up, savings accounts rates are going up to match.
Loan interest rates are currently still quite LOW.
Apply for a 25 K loan at the lowest rate for the longest term possible. Currently the best deal is a loan of £25,000 for about 2.8% with a length of 5-7 years. We'll work on 5 for convenience.
If accepted at the best rate(2.8%) it would cost you this much to pay back over 5 years. In monthly sums. From Money saving expert.
'In total, over the 60 months of your loan, you'll repay £26,819
£1,819 in interest
£446** in monthly repayments'
**
Now here's the fun bit, when you get the 25 K, you immediately put that 25K into the best cash ISA. Make sure it is an ISA as you don't wanna pay TAX.
The top one year fixed cash ISA right now pays 2.2%. The top 3 year fixed pays 2.7%.
Here is what you'd earn over them years if interest were compounded annually(normally its monthly or less, annually is worse so I'm being conservative).
At 2.2% * - Future investment value 5 years
£27,873.69
Total interest earned
£2,873.69 AKA a grand more than you pay back.
At 2.7 % -Future investment value 5 years
£28,562.24 AKA 1.8K more than you pay back
Total interest earned
£3,562.24
*How can interest of 2.2% beat the interest of 2.8% on the loan.....because you pay back the loan in increments. You are getting interest of 2.2% of 25K plus for the entire 5 years. After 2.5 years with the loan, you'll only be paying interest on 12-13K of 2.8% so this amount will be lower. The longer the loan term, the more you can use this to your advantage.
But here's the thing. The base rate is currently going UP, so in a years time ISA accounts could well have an even higher value. We could see the base rate go up 0.25% every review, in a years time these savings accounts may be giving 5% interest. (Note this is from my own studying, its not guaranteed).
And if they don't go up? Pay back the loan early.
So yes, thats just me doing some financial fun rather than work. Sadly as I'm a dodgy bloke who's used loans to huge benefit in the past, I am not allowed to do it. But I thought I'd share in case anyone is good enough with money to trust themselves to do something like this.
I thought about this far more than needed considering I can't get a loan, and thought about lots of the WHAT IF's as well so if anyone genuinely considered doing it, and was accepted for the loan, feel free to PM me.