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Say I want to borrow $225,000.00 to accrue interest on a 1.20% APY account. I promise the lender that I'll pay them a fixed-rate of this interest with agreement that I cannot withdraw nor touch the account by legal contract. I pay them their share and they charge interest on the sitting loan on top of this. I can keep a percentage of the accrued interest and still remain liable for the money and dues to the lender. I can think of a few ways that this would make sense for the lender/work:

1.Collect a larger portion of interest. By sharing the interest with me on a loan, they keep a percentage that they'd normally get -- but I am charged additional interest on a percentage of the loan as well that I'm expected to pay (think like a credit card kind of loan, but the benefit of this is that I keep a percentage of the interest on a month-to-month basis or it's given to me in segments).

2.This money could also be lent to fund, say, a margin-trading account. I keep the same percentage of money from any profits, but I'm expected to pay back interest on both the earnings and the amount lent that remains inside of the margin account itself.

3.The money can also be used to fund a stock/trading account. Regardless of whether I profit, I pay interest on the loan and split the profit shares 24/7. How can the lender lose with legal enforcing?

It's a win-win. I get to share interest to fund business/lifestyle endeavors of my own -- and the lender gets to charge me a prime rate of interest or their own rates -- and they get a portion of the interest back from the start. If I don't pay back, they still keep part of the money and lose none of it.

Is there such a thing like this that could be done? I'm thinking of doing so with $1,000,000.00.

$1,000,000.00 at 1.20% APR will yield me around 50% shared and I get ~$5K a year.

The means of interest they charge can be reasonable -- and they can even charge me based on the interest I accrued rather than the amount sitting in the account. Also, it can be arranged that I can continue to fund the same account (but cannot withdraw) and compound interest on the same interest I'm paid and charged against. I think this idea becomes a smarter, revolving loan.

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    Why would the lender not have a simple "Personal loan" and charge the interest he can than go round about way of doing such things? – Dheer Sep 7 '17 at 5:54
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    I think you have a fundamental misunderstanding of what a loan is. – quid Sep 7 '17 at 6:04
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    One of (at least) two errors happening here... either (a) if the lender is charging you interest on the loan ($x per month) on top of the 50% share of the interest from depositing the loan, then where does the money to pay $x come from? ... or (b) If there's no extra interest charged, why would the lender lend the money to you to deposit, and only get half the interest it earns, when they could just deposit themselves and get all the interest it earns? – TripeHound Sep 7 '17 at 6:52
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    Everything else aside, I think the golden rule of investing to remember is that reward comes with risk; bigger reward comes from bigger risk. If you think you have developed some plan or method of investing that no one else has thought of, and you see huge returns from doing so, then it is very likely that (a) you are missing something in your calculations, or (b) the risk of your plan is quite high, and that's why no one does it. – Grade 'Eh' Bacon Sep 7 '17 at 15:38
  • I don't quite follow your question, but it sounds like you might be trying to find ways to make money via arbitrage. That's when you exploit small differences between markets to make a small but guaranteed profit. If you're just borrowing to invest, that's different because you take risk. – Rocky Sep 11 '17 at 18:03
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No. The WSJ prime rate is 4.25%, even the Fed prime rate is 1.75%, way above the 1.20% you'll be making from your savings account. If you are high worth individual with great credit history, the bank might give you a personal loan at 4.25%. They won't care what you do with it as long as they get their payments.

If you are not that creditworthy, they'll ask for a collateral, you can mortgage your house for example. It ends up being the sames thing, you get your money and do what you want with it.

If you can make more than the interest rate the bank gave you, great, you made profit. The bank however won't agree to lend you money at 0.6% (1/2 of the 1.2% APY your savings account will bring). Why would they when they can loan that at prime rate of 4.25%??

The closest you can get to something like this is if you are a hot-shot wall street money manager with track record of making big profits. In that case the bank might put some money in your fund for you to manage, but that's not something a regular person can do.

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Your plan as proposed will not work, because it goes against how banks make money. Banks make money in two ways:

(1) Fees [including account fees, investment advice fees, mortgage application fees, etc.]; and

(2) Interest Rate Spread. They borrow money for x%, and they lend it out for x+y%. In a simple form, someone gives the bank a deposit, and earns 1%. The bank turns around to the next person in line and loans the money to them for 4%. You are asking them to turn the interest rate spread into a cost instead of their main source of profit:

You are asking the bank to borrow money from another person paying them 1.2% interest, and then loan the money to you, paying you 0.6% interest and keeping 0.6% for themselves. The bank would lose money doing this.

Technically yes, you can borrow from a bank and invest it in something earning above the 4% interest they will charge you. You can then pay the bank's interest off of your earnings, and make some profit for yourself. BUT this carries an inherent risk: If your investment loses money, you still owe the bank, effectively increasing the negative impact of your investment. This tactic is called "Leveraging"; you can look it up on this site or on google. It is not something you should do if you do not fully understand the risks you are taking on.

Given that you are asking this question, I would suggest tactfully that you are not yet well informed enough to make this sort of investment. You run serious risk of losing everything if you over-leverage (assuming the banks will even lend you money in the first place).

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There are many flaws with your idea.

Say I want to borrow $225,000.00 to accrue interest on a 1.20% APY account. I promise ... that I cannot withdraw nor touch the account by legal contract.

If you break the contract and lose the money, the lender is out the money. They can take you to court and will win, but if you don't have the money, then they don't get paid. (You can't squeeze water out of a rock even if a judge orders you to.)

By sharing the interest with me on a loan, they keep a percentage that they'd normally get...

If you're "investing" the money at 1.2%, and the lender gets some amount less than that, then they are getting much less than they "normally" get. Lenders typically get somewhere from 5-15% on loans.

The money can also be used to fund a stock/trading account. Regardless of whether I profit, I pay interest on the loan and split the profit shares 24/7. How can the lender lose with legal enforcing?

Again, if you lose the money, no amount of legal enforcing can force you to pay money that you don't have. Even if you go to jail for fraud the lender still doesn't get paid.

Simply, no bank would ever agree to this.

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With (1), it's rather confusing as to where "interest" refers to what you're paying and where it refers to what you're being paid, and it's confusing what you expect the numbers to work out to be. If you have to pay normal interest on top of sharing the interest you receive, then you're losing money. If the lending bank is receiving less interest than the going market rate, then they're losing money. If the bank you've deposited the money with is paying more than the going market rate, they're losing money. I don't see how you imagine a scenario where someone isn't losing money.

For (2) and (3), you're buying stocks on margin, which certainly is something that happens, but you'll have to get an account that is specifically for margin trading. It's a specific type of credit with specific rules, and you if you want to engage in this sort of trading, you should go through established channels rather than trying to convert a regular loan into margin trading. If you get a personal loan that isn't specifically for margin trading, and buy stocks with the money, and the stocks tank, you can be in serious trouble. (If you do it through margin trading, it's still very risky, but not nearly as risky as trying to game the system. In some cases, doing this makes you not only civilly but criminally liable.) The lending bank absolutely can lose if your stocks tank, since then there will be nothing backing up the loan.

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