Banking Like a Bank
Your Money Is the Best Employee You’ll Ever Have
Money is a tool, and most people never put theirs to work. Jeff’s way of putting it: your money is the best employee you will ever have. It doesn’t get sick, it doesn’t complain, and it never asks to be paid overtime. What it does need is a job.
How a Bank Actually Makes Its Money
Banks hold very little capital of their own. They pay you a modest rate to hold your deposit, put that same money to work at a higher rate, and keep the difference. That difference is called the spread, and the spread is where the profit lives.
Take round numbers. If a bank pays 5% on the money you deposit and puts it to work at 8.25%, it earns 3.25% on money that was never its own. Nothing in that arrangement requires you to be a bank. It requires you to be on the right side of the spread.
You Wear All Three Hats
In an ordinary loan there are two parties: you, and the bank. A properly structured cash value life insurance policy lets you occupy every position at once.
You are the depositor, because you’re paying premium into the policy. You are the borrower, because you take policy loans back out of it. And you own the policy, which puts you in the bank’s chair too. The profit a bank would have kept has nowhere else to go.
Why the Money Keeps Earning While You’re Using It
This is the part that surprises people, and it’s worth being precise about. When you take a policy loan, your cash value does not leave the policy. The insurance company lends you its own money and holds your cash value as collateral, so that cash value stays exactly where it is and keeps being credited.
So you have the use of the money, and the money is still working. What your cash value is credited, set against what the loan costs you, is the same spread the bank was keeping. Run for enough years, on large enough sums, that spread is the whole strategy.
The Terms That Make This Something Other Than a Loan
A policy loan behaves unlike consumer debt in ways that matter here. There’s no credit application and no effect on your credit report, because you’re borrowing against collateral you already own. There’s no monthly payment schedule; the loan is settled out of the death benefit at the end. And the insurance company will never lend you more than your cash value secures, which is what keeps the arrangement from running away from you.
Policies used this way are also index-linked rather than directly invested, so a falling index doesn’t subtract from your cash value.
Loan interest rates, rate caps, crediting methods, and policy charges are specific to the carrier and the contract, and they vary. Nothing here describes a particular policy's terms. Ask for your own numbers, in writing, before you decide anything.
Where the Risk Actually Sits
There are real costs, and this page would be worth less to you without them. You’re paying policy charges every year whether the strategy is performing or not. In a year when the index doesn’t rise, the loan can cost more than the cash value is credited, which is a negative spread for that year. Policies built for this are typically designed with a capital reserve inside them specifically to absorb that, but it’s a real scenario, not a hypothetical.
The strategy also depends on the policy being funded and structured correctly at the outset, and on it staying funded. Set up badly, it’s just an expensive life insurance policy.
When Jeff walks someone through the numbers, he doesn’t show only the recent spread. He runs it again at a substantially worse one, and again at close to nothing, so you can see what the plan does when the assumption doesn’t hold. That’s the version worth making a decision on.
What People Actually Use It For
Funding education is a common one, because the timeline is fixed and the bill is large. A family with a child eight or ten years from college has a defined window to build inside, and the same policy keeps producing supplemental income long after the tuition years are behind them. Major purchases and retirement income work the same way. The money was going to be spent either way; this changes who profits from the financing.
Where This Comes From
The strategy is laid out in Banking Like a Bank by David Weiner, a short read at roughly 85 pages. Jeff gives a free copy to anyone who completes a 30-minute call with him.
Frequently Asked Questions
What is infinite banking, or 'Banking Like a Bank'?
Banks make money largely by lending out other people's money, since they don't have much capital of their own. The idea behind Banking Like a Bank is to become your own source of financing instead, for things like major purchases, education, or supplemental income, keeping the profit a bank would otherwise make. There are real costs involved in setting it up, but for the right situation, they're outweighed by the benefit over time.
Learn about Banking Like a Bank →How do I get a free copy of the Banking Like a Bank book?
You qualify for a copy of David Weiner's Banking Like a Bank at the completion of a 30-minute call with Jeff, not as an upfront download. It's about 85 pages, so it's a short read, and it's dense enough that most people finish it with more questions than they started with. That's the point: it lands better once you already have context for how the ideas in it apply to your own situation.