Interest rates are very low right now. They are so low that the government is able to lend money at pennies on the dollar. CDs are paying next to nothing and the bond market is a joke. Must be a great time to borrow money right? Possibly. If you are borrowing money to buy a depreciating asset, such as a car, I would say, don’t waste your time. If you are borrowing money to invest in a nice home in a great location, where property prices are expected to rise, I would say, hmm, that might be a good idea.
But what if you were able to borrow money at 2% and invest it with an 8% return? Well, then I’d call you the typical banker. But you’re not a banker, you’re a student and you probably have a hard enough time getting your student loan situation straight. Well if you are in the UK, you’re in luck. There is a way for you to borrow money as a student and invest it into stocks which over time could earn you 7-8% per year.
It can be tough scraping by on a student loan, but if you are smart about how you manage your money, you can make the most of what you have got and make your life a little easier in the process. For student accounts, visit the Santander website.
What is a Student Account?
A student account allows you to borrow money, interest free, while you are completing your studies. The money that you borrow is called an overdraft. Your student years are the only times in your life when you will be given interest-free or low-interest lending for a duration of several years. With most student overdrafts, you don’t have to pay any interest until you graduate. Now, while you may be tempted to blow your loan and/or overdraft (usually both) at the student union bar, it can make a lot of sense to take these loans and invest them in a high-interest savings account or investment vehicle.
How to Invest with Borrowed Money
For example, if you receive £4,000 in student loans each year, and have a £1,000 interest free overdraft, this gives you £5,000 to invest. Put this in a mutual fund or a bond fund, and it could realize 5% or more over the year in terms of interest. 5% of £5,000 is £250. If you were to take this and add the next year’s loan, you would earn 5% of £9,250, which is £462.50. Do the same the following year, and you will earn £685.63, giving you a grand total of £14,398.13 – a net profit of nearly £1,400 in just three years!
Of course, you will need to have money to live on. The simple answer here is to get a part time job one or two nights a week. Even at minimum wage, a 6 hour bar shift will still pay around £40, which is more than enough to get by on if you don’t have accommodation to pay for, as long as you are careful with your money. For more ideas on how to do this, there is a wealth of information about budgeting and managing your student finances at the National Union of Students website.
Do you think it’s smart to invest with borrowed money? Would you do it?