We're trying to see what other Bank's do, as far as securing loans with the borrower's CD or Savings accounts. Are their contracts typically fixed rates or variable rates?

We had the question come up b/c we are trying to assess some processes going forward. Right now our loans that are secured by CD/Savings accounts is mixed (some are fixed/some are variable).

Any guidance/opinions are greatly appreciated.

Thank you!

You can do either. I am not sure why you would want to make a variable rate loan if your CD rate is fixed. Your yield spread is already baked in. I would never secure a cash secured loan with a savings account. Too many chances for an error.

We liked CDs with fixed rates on the loan and theCD to get the margin and move on.

Savings are terrible because the borrower may get in the habit of asking the lien hold to be lowered as they pay the loan down. Plus the risk of an error is greater. More than once I had to take in "cash secured" loans for charge-off because I had a Note to collect on whereas the teller who made the error and ignored the hold didn't. KISS

Thank you for your response! Our CD rates are not fixed, they are variable, which lead to the question, should our loan rates (note) be variable as well, b/c right now some are fixed.

Well, with a rapid rise in interest rates, would not the interest rate on the CD exceed the loan rate at some point in time? Not sure how wise that would be to set the loan up that way. I am not sure I have ever seen a bank use variable rate CDs before, but if you did, I think you would want the loan to be a variable rate also. It just does not make a lot of sense to do it that way - you complicate an otherwise very simple product.

I completely agree with you also. I've personally never seen it done that way either or even heard of it done that way. So when the question was brought up to me, I figured I'd go and get some other opinions on the situation.

Thank you so much for your response, it's appreciated!