# Are there savings accounts that only allow you to borrow money from it (e.g 401k loan)? **URL:** \ **Category:** Factual Questions\ **Created:** [August 6, 2019, 6:23pm UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263 "2019-08-06T18:23:57Z")\ **Posts on this page:** 8\ **Page:** 2
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [August 14, 2019, 5:40am UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/21 "2019-08-14T05:40:31Z")
> [@filmore](#): > > … > I didn’t realize you could get a CD-backed loan. That could be a good option. For example, a kid just starting out could get advice to never carry credit card debt and live within their means. But if an unexpected expense came up, they could get such a loan. That way they aren’t tempted to start carrying balances on their CC. The parents could start the kid out with $XX in a long-term CD. They could also tell their kid put money in both regular savings in cash and some in CDs, but the loan would allow them to access the CD-locked money in an emergency. We did just that some years back. We had the cash for the purchase in question (it was a computer, IIRC), but we were concerned we wouldn’t be disciplined enough to pay it all back to ourselves. So we took out a loan secured by the CD - and a year later, we had the computer AND our 2000 bucks. ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [August 14, 2019, 5:44am UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/22 "2019-08-14T05:44:06Z")
> [@xnylder](#): > > Not exactly an emergency loan plan, but: In Canada, you can “borrow” up to $35 000 from your retirement savings to purchase a home. (Scare quotes because, well, it’s your money in the first place.) Note that you don’t have to pay back any interest, you just have to reimburse the amount that’s missing from your RRSP account over 15 years. [Link to Home Buyers’ Plan here](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html). There’s something similar in the US, though only against a 401(k) or similar (a workplace savings plan). You can NOT borrow against an IRA (an individual account). The payback rules are strict; I think 10 years if you are using it for a home, 4 if you are using it for any other purpose. And if you leave that job, you may have to come up with the outstanding balance very quickly, or it gets treated as an early disbursement with all the penalties that entails. We took out such a loan some years back when the mortgage fell through on the condo we were purchasing for my in-laws; I had to raise tens of thousands of dollars in a very short timeframe. Paying that back sucked - as it did not qualify as a loan for a primary residence. ---
**Author:** ![Philster](https://avatars.discourse-cdn.com/v4/letter/p/13edae/32.png) [@Philster](https://boards.straightdope.com/u/Philster)\ **Post date:** [August 14, 2019, 1:48pm UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/23 "2019-08-14T13:48:17Z")
Loans backed by deposits, CDs and other guarantees are available from your bank at decent rates because, well, they are secured…and you are encouraged to pay back because they hit your credit report (the good or the bad). This provides extra incentives to pay, and it comes with risk if you don’t. If you don’t pay back a 401k loan, because you lose your job and ability to pay back into it, you collect your 401k for transfer to another 401k (or whatever) and the outstanding principle is deducted before transfer or payout. . ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [August 15, 2019, 12:14am UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/24 "2019-08-15T00:14:28Z")
> [@Philster](#): > > … > If you don’t pay back a 401k loan, because you lose your job and ability to pay back into it, you collect your 401k for transfer to another 401k (or whatever) and the outstanding principle is deducted before transfer or payout. > . Not just that, but you’ll owe hefty taxes and penalties on the part that hasn’t been repaid. Also when you leave a job, usually you do NOT have to roll over your 401(k). ---
**Author:** ![Philster](https://avatars.discourse-cdn.com/v4/letter/p/13edae/32.png) [@Philster](https://boards.straightdope.com/u/Philster)\ **Post date:** [August 15, 2019, 7:56pm UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/25 "2019-08-15T19:56:28Z")
> [@Mama\_Zappa](#): > > Not just that, but you’ll owe hefty taxes and penalties on the part that hasn’t been repaid. > > Also when you leave a job, usually you do NOT have to roll over your 401(k). Right, that’s the ‘whatever’ part… but they deduct the outstanding balance from the 401k if you don’t pay. Typically, the payment ends when the job ends. ---
**Author:** ![edwardcoast](https://avatars.discourse-cdn.com/v4/letter/e/cab0a1/32.png) [@edwardcoast](https://boards.straightdope.com/u/edwardcoast)\ **Post date:** [August 16, 2019, 8:23am UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/26 "2019-08-16T08:23:17Z")
> [@filmore](#): > > However, for someone who is just starting out, not good with money, impulsive, etc., having a limited use savings account could help them be financially stable. Seems they have a bigger issue to solve if that’s the case. When I was young, I was not impulsive on spending, and I was good with money. They need to learn to manage it, because it is something you are going to have to do your entire life. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [August 16, 2019, 10:37pm UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/27 "2019-08-16T22:37:31Z")
> [@Omar\_Little](#): > > It is actually the lost earnings that you are missing out on, while those funds are not in your investment account. If during the 4 year period that $10,000 you borrowed, could have been earning 15% per year invested in an index fund, that’s the true cost of your borrowing, not the 4%. This is true, but borrowing from a 401(k) is still better than most other forms of borrowing. If instead you borrowed from a bank and kept the money in your 401(k), then you’d be paying interest to the bank (instead of yourself) and you’d be more highly leveraged, and you’d have to put up something as collateral, which you risk losing. If you think it’s a good idea to borrow money and invest it, you can do that whether or not you need to take a loan. But leverage is risky. Suggesting that you can make 15% invested in an index fund is obvious cherry picking. You can also lose money, and average returns are nowhere near 15% annual. ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [August 17, 2019, 1:35am UTC](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263/28 "2019-08-17T01:35:47Z")
> [@Omar\_Little](#): > > … > It is actually the lost earnings that you are missing out on, while those funds are not in your investment account. If during the 4 year period that $10,000 you borrowed, could have been earning 15% per year invested in an index fund, that’s the true cost of your borrowing, not the 4%. It’s actually worse than that. I believe that most people, when they take out such a loan, reduce or stop new contributions while they are paying things back - because they need that cash flow to make the payments. So if you’re saving 6,000 a year - and you take out a loan that requires payments of 500 a month, you would have to continue paying the 500 a month for the loan, AND another 500 a month to continue your contributions at the previous rate. So if you have 100,000 in the account now, and you borrow 24,000, you have 76,000. In 4 years, after you pay back the 24,000 (ignoring interest for simplicity), you have 100,000 assuming you weren’t able to keep making the contributions as well… If you had NOT taken the loan, you’d have 100,000 now, plus 24,000 additional contributions, or 124,000. Or more, since you’re also losing out on employer contributions. When we had to take a 401(k) loan a few years back, I cut my contributions due to cash flow reasons, though I managed to keep them at the 6% to get the employer matching. [Previous page](https://boards.straightdope.com/t/are-there-savings-accounts-that-only-allow-you-to-borrow-money-from-it-e-g-401k-loan/838263.md?page=1)