Personal Insights

Building credit with a savings-secured line of credit

A savings secured line of credit offers you an easy way to borrow money while still earning interest on your savings.

If your credit health is a concern, you might want to consider a savings secured line of credit, which can help you build credit and achieve your goals.

What is a savings secured line of credit?

“A savings secured line of credit is a revolving line of credit with a variable interest rate that’s secured by your savings account,” explains Jennifer Case, Consumer Lending, Direct & Unsecured Product Manager at Regions Bank. “You can borrow as needed, up to your limit, then pay those funds back and draw again.”

Here’s how it works

When you’re approved for a savings secured line of credit, your bank gives you access to a pool of money that you can tap to pay for expenses up to an established amount. In exchange, the bank holds funds in your savings account as collateral, meaning you can’t withdraw those savings until you pay back the money and close your line of credit; until then, you can continue borrowing and repaying money.

“If you wanted a $5,000 line of credit, we’d make sure you had at least $5,000 in your savings account, then we’d put a hold on those funds and issue you a line of credit,” says Case, who explains that you can obtain a savings secured line of credit with as little as $250 in a savings account and as much as $100,000.

What are the benefits?

A savings secured line of credit can be attractive for many reasons, Case says. Major advantages include:

• Flexibility. You can use your line of credit for whatever you need—a monthly bill due before you receive your paycheck, an emergency car repair or even medical bills.
• Interest earnings. When you use your savings secured line of credit, your savings stay in your account, continuing to earn interest.
• Build credit. Responsibly paying back your line of credit can help improve your credit history.
• Quick approval. Banks typically decide on an application within a few minutes.
• Competitive interest rates. With secured credit, banks are taking on less risk because of the availability of your collateral. As a result, the bank may offer a more favorable interest rate than it would with unsecured credit.

Remember that you will not have access to the savings to use for the line of credit. Once you take out a savings secured line of credit, your savings are held by the bank until you pay back the line of credit.

Ultimately, Case says, a savings secured line of credit can be a safety net for people who need better cash flow as well as a stepping stone for those who want to work on improving their creditworthiness.

Another option for such borrowers is a savings secured loan, which is similar to a savings secured line of credit but has a fixed interest rate rather than a variable one. As with a savings secured line of credit, you can borrow up to 100% of the balance of the account you’re using as collateral and your savings or money market account will continue to earn interest, including the portion of the funds that are being used as collateral. Additionally, a CD account can also be used as collateral on a savings secured loan. The repayment terms may vary for a savings secured loan and can range from six to 60 months, depending on the loan amount.

Of course, with both savings secured lines of credit and loans, you’re responsible for paying back the borrowed amount as well as the interest. So it’s essential to manage what you borrow responsibly.

“The intent of a savings secured line of credit isn’t to help you go out and make a major purchase you can’t afford,” Case says. “It’s to give you easy access to funds when you need them and help you build or rebuild your credit profile by borrowing and paying back relatively small amounts on a regular basis.”

Three things to do

1. Are you interested in a savings secured line of credit with Regions? Learn more here.
2. Compare other options for personal loans through Regions.
3. Do you have a large amount of debt? Find out how to pay down debt strategically.