Try faulu,some months ago I was looking for
a place to put some idle cash.Faulu's rate was the highest I could get but the problem was that funds have to be kept there for at least 3 months

Help required if say:

A bank gives me a loan of 1 Million to be paid at 12% interest [for 1 year] and I deposit in a fixed account 1 million in a bank that is giving me 12% p.a
Question:
Will the two interests be equal?
How is this mathematics done?
Somebody knowledgeable?

@iMANI Thanks

Does it then follow that if I have a fixed account giving me 10.25% and I take 80% of my fixed account as a loan at 16% from the bank I am paying the loan at 5.75% = [16-10.25]? Assuming equal duration.
Right? taking option 1!

@Ngong - I had also thought of the same thing but using bonds instead to reduce the loan payments and possibly make a profit.But then I remembered bonds are instruments that reward/punish you if interests rates change.Using the example you have given you won't pay 5.75% for the loan.You will actually have a loss.

Here's how,with loan and without loan:

Without loan
Fixed Account Amount = 1,000,000
Interest Rate = 10.25%
After One Year Total = 1,000,000*(1+.1025) = 1,102,500
Profit = 102,500

With loan of 80% of deposit
Fixed Account Amount = 1,000,000
Interest Rate = 10.25%
20% deposit(200,000) = 200,000*(1+0.1025) = 224,000
Profit on 20% = 24,000
80% deposit(800,000) = 800,000*(1+0.1025) = 896,000
Profit on 80% = 96,000
Total Profit = 96,000 + 24,000 = 120,000
Loan Calculations
Principal Amount(80%)= 1,000,000*0.8 = 800,000
Loan + Interest = 800,000*(1+.016) = 928,000
Interest Amount = 928,000 - 800,000 = 128,000

End loss = 120,000 - 128,000 = -8,000

The reason I separated the loan part into 800,000 and 200,000 is to make it easier to match the 800,000 loan with the 800,000 in the fixed deposit.End of the day you have paid the bank 8,000 when you could have earned 102,500.

...@chess master unless you sell your bond before it matures thats the only time current interest rates can affect the bond price,rem your coupon is fixed no matter how rates flactuate unless of course its an FRN...there are formulae to calculate the value of a bond at a gvn time e.g Japanese gross redemption yield...i looked at the problem this way;if @ Ngong took 800,000 from a commercial bank @ 16% for 5 years (btw the duration really matters) it means he will pay a sum of 19,454.45,totalling to 1,167,267 this means that 145.90% of the amount borrowed is what will be paid in the end...if he deposits another 100000
in a fxd deposit account @ 10.25% he will be making,102,500,monthly that equates to 8,541.67...meaning he will be required to pay 19,454.45 - 8,541.67 = 10,912.78 per month for his loan.

...if @ ngong wants his profit from the 1,000,000 fxd deposit @ 10.25% to completely pay a loan,he can be gvn 351,248.04 @ 16% for 60 months or 5 years forming some sort of arbitrage,to pay 5.67% he can get a loan of 445,348...meaning he will need to top up on the monthly payment.

you guys have not factored in:

for the FDR = W/tax at 5% eaten by the GoK

Loans:
1. loan application fees
2. some banks charge processing fees
3. life insurance
4. generally they will charge you some monthly ledger fees which look minimal but when added annual is a nice figure.

Therefore, the loan cost is generally higher.

actually w/tax is 15%

i think banks should be made to quote after tax prices like everyone else... safcom, airtel, EABL, nakumatt, kenolkobil etc.

But if I take a loan of Same amount at 16%:

Loan amount: 1000000
Number of Payments: 12
Annual Rate: .1600
Monthly Rate: .01333
Monthly Payment: sh90730.86
Total Paid: sh1088770.29
Total Interest: sh88770.29

LOOK AT THIS:
The bank has paid me Kshs. 87,125
I have Paid the bank Kshs. 88,770

Overall I have paid 88,770 - 87,125 = 1645 plus processing fees

At the end of the year I have my 1 million and a project worth a Million.

Is this wise or just wishful thinking?

@Chessmaster Good that you appreciate that I will have a project and a million in hand to make it even stronger.
This reasoning is mostly directed to the jua kali guys and those who work under contracts,the lending institutions have NO business with such people.
Saccos would group you,something I hate when money is involved.

What do you advice brother?