I have recently opened an unsecured line of credit for $20k at 1%. I have a savings account at the same institution making 1.5% - both compounded daily and paid monthly.
I've read a few questions on here relating to paying off debt with itself, and the Canadian personal loans page, but I still feel like I may be misunderstanding something. I've even created a graph outlining a theoretical situation, which may explain my question better:
- The blue line is $20k in savings making 1.5% per month
- The green line is if I borrow the $20k at 1% and put it in the same savings account making 1.5%
- The red line is the amount owed on the LOC
Each month, the 1.5% is added to both green/blue lines, then 1% of the amount owed (minimum payment) is taken from the green line. The lowest minimum payment for my account is $16.67, which is accounted for in this graph.
This is just blue-sky thinking, and I am not accounting for cases where interest rates change, and that the bank would be totally fine with such a long-term loan.
With this setup, would it be a Good Idea™ to exhaust the entire LOC and move it into an account making just slightly more than the minimum payment? Or is my math or understanding of how this works all hopelessly wrong?