<p>Sorry–nancy should of course be MANY. Don’t understand the odd spell check which changes some of my words. </p>
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If this money is from your retirement account you can NOT afford to lose, will you still lend the money to him? </p>
<p>Somehow my spouse and I think we should not if this is the case.</p>
<p>The money is money which would not harm us if for some unforeseen reason it isn’t repaid. I would not offer to loan money from our retirement accounts, nor any funds we couldn’t afford to lose. Our kids would never accept funds that would jeopardize our financial security. </p>
<p>The money is currently sitting in accounts earning literally 0.01% interest. </p>
<p>Just an OT question: Do you really mean that you are earning 0.01% interest on your money? or do you mean that you are getting 1% interest. I agree that interest rates are really dismal these days… but I have the impression that you have a healthy amount of savings. I don’t have all that much, but it is possible to get better returns through long-term CD’s, bonds, etc. I’m not saying that this should be a factor in whether you lend money to your son… though I personally think that the desire to get better interest than the bank is giving you is not at all a good reason to lend to a family member. That is – I think that if you do lend money to your son, you should lend from your heart, not from pecuniary interest… If you just want to improve the returns on your money… there are other, better options. </p>
<p>Calmom, .01% interest is what’s on offer lately. Even my Vanguard money market account is in that range, and their rates are usually better than most.
<a href=“Vanguard Mutual Fund Profile | Vanguard”>Vanguard Mutual Fund Profile | Vanguard;
<p>OK… some simple math – and here is why have the question:</p>
<p>The number .01% can also be written .0001
The number .01 equates to 1% interest (no decimal). </p>
<p>When you add a % symbol after a number, that is the same as dividing that number by 100.</p>
<p>That is, if I have 100% of $1— I have one dollar. </p>
<p>So I do find Himom’s posts very confusing - I am guessing she is earning 1% on her savings and proposing to lend him money at 4% – but she’s written that she is getting .01% and wants to lend to her son at 0.4 percent (i.e., 40 times what she is currently getting). </p>
<p>If she wants to draft up a promissory note with her son, then it is really, really important than she get that part figured out correctly. I didn’t learn much math in law school, but I did learn how to calculate interest on a debt. </p>
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<p>And I just looked at your link. I’d suggest that you put our cash somewhere else other than Vanguard. Ally Bank is paying me 0.1% on a checking account I have with about $800 in it. I am getting 0.87% on a savings account, and rates between 1.25% and about 1.6% on CD’s. (No minimum deposit on CD’s, so I split up my money and bought CD’s with different maturity dates). </p>
<p>If she really means to lend her son money at 0.4% because she thinks she can’t get more… she’s banking in the wrong place. </p>
<p>See <a href=“Best CD Rates for June 2023 | Bankrate”>http://www.bankrate.com/cd.aspx</a></p>
<p>If he’s paying her 4%, then that’s something different. There are investments she could make that would pay more, but not necessarily less risky than lending the money to her son. </p>
<p>No, I am currently earning 1/100 of 1% interest at the local bank and Fidelity money market. The IRS approves an interest rate for a loan of up to three years at 1/3 of 1% (0.33%). I would charge S 4/10 of 1% or 0.4%, because it is above the IRS minimum and what I could get at my credit union in the money market account. Believe Schwab money market is also very low. </p>
<p>It is a win/win, as we want to help him get more inventory and is what we would otherwise be getting from where we would have otherwise deposited it. </p>
<p>I am aware of the difference between .01%, 0.1% and 1.0%. I am unaware of anywhere you can get 1.0% these days at any money market account. Am not particularly interested in locking my funds up in CDs at this time, and even those have been paying amazingly low interest rates currently. </p>
<p>I don’t particularly want income from S, but prefer that he return the principal when he’s done buying and selling inventory with it. I am aware of banks like Ally and others on BankRate, but prefer local banks or places we have some financial relationship. </p>
<p>Currently, I do not have a relationship with Ally Bank, but have heard some positive things about them. H will be unhappy to have accounts with new financial institutions. </p>
<p>OK, but the 0.87% I get on my Ally savings account is lot more than that (obviously) – so can you see why I am confused? I mean-- I personally would lend money to my kids any time they needed it, no questions asked beyond, “when do you think you can pay me back?” - and definitely no charging interest. So I’m not suggesting that you are making a bad deal with your son… I just have a problem with the idea of looking at the transaction in terms of the interest you are getting. Either you want to help your son, or you want to improve your rate of return. If it is the latter, then there are plenty of options that pay more – here’s a link to current rates on money market accounts:
<a href=“10 Best Money Market Account Rates for June 2023 | Bankrate”>http://www.bankrate.com/funnel/savings/savings-results.aspx</a></p>
<p>I’m not saying that it’s a bad idea to lend the money to your son for lower interest… I’m just saying that it’s an odd rationalization. </p>
<p>There is no ambiguity about 0.01%.</p>
<p>The interest rate HAS to be at or above the rate the IRS sets, or the IRS will impute interest and may see the transaction as a gift not loan. The rate we are specifying meets that criteria. Thanks for everyone’s different perspectives. </p>
<p>The interest rate of 0.4% is lower than S could realistically get from any outside source, which we and he recognizes. It’s still ok with the IRS, provided we have a formal written promissory note that we all honor, including the payment schedule, reporting the interest on the IRS 1098 and INT-1099. </p>
<p>I’m not a business person…but how will his loan show up on your son’s business records? Perhaps it would be better to gift him the money, than to have this debt on his business record.</p>
<p>This confusion is why everything should be stated in basis points. Much easier to say 1 bp and have everyone know what you’re talking about.</p>
<p>FWIW, I only get .08% (8 bps) on my savings account each year. </p>
<p>HIMom, you were saying .4% (40 bps) a month, right? So 4.91% (491 bps) a year, right?</p>
<p>Looking it up it appears the minimum interest rate for loans is 33 bps annually, so 3 bps a month, well under the 40 you mention. </p>
<p>Many of us have not heard of basis points–1/100 of 1%, correct? (I only have heard of these in the past month.) Will have the loan for 40 bps/year, NOT per month; it will be just above the nearly 3 basis points per month otherwise imputed by the IRS. </p>
<p>The way the loan will show up in S’s records is as a promissory note for which he pays interest on and repays in a timely manner. It is perfectly reasonable to borrow and repay funds, and that should NOT have any negative impact on his business. Yes, we could charge S more interest, but prefer HIM and his business to have the money instead of H & I. Our object is to help him grow his business.</p>
<p>I haven’t read all the posts, but agree it’s a great thing to do for your son as long as it won’t ruin your relationship if for some reason he doesn’t pay. It sounds like a win-win to me, and he sounds very responsible. </p>
<p>Is there really a point in having him making monthly interest only payments then? On a 100K loan the interest each month is about $33. Seems not worth the effort, might as well let the interest roll over into the yearly payment. </p>
<p>The point is to treat this as a trial and see how it goes, observing the formalities. If it goes as well as I expect, we will see about how to move forward in the future. </p>
<p>I want S to treat his business as a business, which includes paying monthly interest in any outstanding loans. I know the interest payment is a very nominal sum, but the IRS and I want the monthly interest payments, even if they’re under$20/month. </p>