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 Dear
Dr. Don,
Will most banks allow you to use your savings account as collateral on a loan?
-- Allen Assets
 Dear
Allen,
A fairly common loan product, known as a CD loan,
allows you to pledge your certificate of deposit,
or CD, as collateral, but not all banks offer
these loans to customers. It would be unlikely
you could use a savings account as collateral
against a bank loan because, unlike a CD, you
have ready access to the funds held in the savings
account.
The Bankrate feature "Borrow
against your CD for a low-cost loan"
explains these loans in greater depth. They can
be a low-cost way to borrow funds, especially
if you have a poor credit history.
If you're looking to improve your
credit by taking out a CD loan, you should make
sure the bank is reporting the loan's payment
history to the credit bureaus. Your credit
score is based on the information on your credit
report. A rock-solid payment history that
isn't reported doesn't do you a bit of good.
You need a good
reason to pay 2 percent to 3 percent over what you're earning on your CD to borrow
using a CD loan. Problem credit is one reason. Lacking the financial discipline
to rebuild the savings account in the absence of a required loan payment is another.
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