Bank interest is higher than mortgage rate, a failed get rich quick scheme

A weird thing is happening right now. When weird things happen, we look for funny ideas. I thought one day I stumbled on a great get-rich-quick scheme. Here’s the scenario: high-yield interest bank accounts are offering a greater percentage than the mortgage rate for many people. If you bought your house at a certain time or refinanced, you might be in the same situation as us. We’re earning more in bank interest percentage points than we’re owing on the mortgage. What should we do? There must be a way to at least temporarily take advantage of this.

It sounds so perfect. We can keep the debt, earn more passive income through bank interest, and plan our retirement well in advance. I can tell people how I really feel about them. Maybe I’ll even spring for a recycling can without a large crack in it. This is called winning life.

But there’s a problem. Whenever a scheme to get rich quickly seems too good to be true, you probably missed a step. And I did. While the bank offers 3% and our mortgage is a bit less than this right now, two other factors are keeping me from this get rich quick scheme. There are probably more. Two was all I needed to realize while this is good news, it isn’t something to benefit from as much as I previously believed.

Bank interest is higher than our mortgage rate, but our mortgage is a hire total number

Unless all things were equal, let’s say 100K in the bank and 100K left to pay on the mortgage principal, you’re not going to benefit. There probably is a crossover number when instead of paying extra on the mortgage you should put it in the bank. I just don’t have the math skills to calculate it. Meanwhile, I’m brilliant at identifying people who can count numbers in their head.

Definitely not good at math. See? It’s a skill of mine.

I know we’re not at the point of having as much in savings as we owe on the principal, thus, our plan of continuing to pay off extra on the mortgage each month continues. It was a sad day in our house when I realized this. So much for leveraging a good thing in our favor.

Moreover, there is another bad and ugly reason why I can’t get rich off of this plan. Taxes.

Don’t forget to pay your taxes on your get rich quick schemes

I honestly don’t even know how much percentage bank interest is charged on taxes. A quick search online brought me to a range of 10-37%. This sounds about right. It is free money therefore the government must be entitled to get a nice bite of it. They really are the Cousin Oliver of our life.

Removing even 10% from the equation drastically changes my thoughts on this. Using our 100K, a 3% return on bank interest would give you $3,000 for the year. That’s not bad for doing nothing but park money. Taxed at 10% and it’s down to $2,700. Still not bad, it only increases the difference you need between the mortgage principal and the total in your savings account.

Maybe in the future during another tumultuous time in the American economy I can get this to work. For now, it’s back to the drawing board, back to paying off whatever we can early on the mortgage, and raking in a little extra from the outrageously high interest rates banks are offering right now.

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The book that convinced us to start investing and being more proactive with our money and lives: The Only Investment Guide You’ll Ever Need by Andrew Tobias

The gear we use to make our YouTube videos at the Practically Humans YouTube Channel

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